The Macroeconomic (and Distributional) Effects of Public Investment in Developing Economies

This paper provides new empirical evidence of the macroeconomic effects of public investment in developing economies

• From: Department for International Development
• Published: 20 October 2017

• Document Type: Working Paper
• Theme: Economic Growth
• Authors: Furceri, D, Li, B.G.

Abstract

This paper provides new empirical evidence of the macroeconomic effects of public investment in developing economies. Using public investment forecast errors to identify unanticipated changes in public investment, the paper finds that increased public investment raises output in the short and medium term, with an average short-term fiscal multiplier of about 0.2. We find some evidence that the effects are larger:

1. during periods of slack

2. in economies operating with fixed exchange rate regimes

3. in more closed economies

4. in countries with lower public debt

5. in countries with higher investment efficiency.

Finally, we show that increases in public investment tend to lower income inequality.

This work is part of the ‘Macroeconomics in Low-income countries’ programme

Citation

Davide Furceri, Bin Grace Li (2017) The Macroeconomic (and Distributional) Effects of Public Investment in Developing Economies. IMF Working Paper No. 17/217

Links

The Macroeconomic (and Distributional) Effects of Public Investment in Developing Economies

Published 20 October 2017