Contribution of Public and Private Investment in the Growth Process: A Cross-Sectional Investigation Using OECD Data

This paper examines the relative contribution of public and private investment to per capita GDP growth in 36 OECD countries. It extends the basic neoclassical model of growth by separating investment into its public and private components following Khan and Kumar (1997) and estimates this model for a sample of 36 OECD countries using single equation estimation techniques for four time periods: 1980-1989, 1990-1999, 2000-2009, 2010-2017. This empirical analysis provides a framework to test several interesting hypotheses: (1) Does private investment have a larger impact on growth than public investment, and is the differential impact statistically significant? (2) Does public investment expenditure substitute or complement private investment in the economic growth process? (3) Does evidence support convergence in per capita real income across the 36 OECD countries? The findings from this study are relevant from a theoretical, empirical, and policy point of view. All data are derived from IMF’s World Economic Outlook (WEO) database, World Bank’s World Development Indicators and OECD National Accounts.https://ir.library.illinoisstate.edu/urseco/1002/thumbnail.jp