A recent trend in several low-income developing countries has been a rapid scaling-up of public investment. It is argued that in the presence of limited absorptive capacity countries are not able – in terms of skills, institutions, and management – to translate additional public investment into sustained output growth. They test for the presence of absorptive capacity constraints using a large dataset of World Bank investment projects, approved between 1970 and 2007 in 80 countries. Their results indicate that projects undertaken in periods of public investment scaling-up are less likely to be successful, although this effect is relatively small, especially in poor and capital scarce countries. They also verify that this effect is unrelated to large aid flows and donor fragmentation.
This work is part of the ‘Macroeconomics in Low-income countries’ programme
Andrea F. Presbitero, Too much and too fast? Public investment scaling-up and absorptive capacity,Journal of Development Economics, Volume 120, 2016, Pages 17-31, https://doi.org/10.1016/j.jdeveco.2015.12.005.
Too much and too fast? Public investment scaling-up and absorptive capacity