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OPTIMAL PUBLIC INVESTMENT, GROWTH, AND CONSUMPTION: EVIDENCE FROM AFRICAN COUNTRIES

Published online by Cambridge University Press:  17 December 2015

Augustin Kwasi Fosu ,
Yoseph Yilma Getachew  and
Thomas H.W. Ziesemer
Augustin Kwasi Fosu
Affiliation:
Institute of Statistical, Social and Economic Research (ISSER), University of Ghana
Yoseph Yilma Getachew
Affiliation:
University of Pretoria
Thomas H.W. Ziesemer*
Affiliation:
Maastricht University
*
Address correspondence to: Thomas H.W. Ziesemer, Department of Economics and UNU-MERIT, Maastricht University, Maastricht, the Netherlands; e-mail: t.ziesemer@maastrichtuniversity.nl.
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Abstract

This paper develops a model positing a nonlinear relationship between public investment and growth. The model is then applied to a panel of African countries, using nonlinear estimating procedures. The growth-maximizing level of public investment is estimated at about 10% of GDP, based on System GMM estimation. The paper further runs simulations, obtaining the constant optimal public investment share that maximizes the sum of discounted consumption as between 8.1% and 9.6% of GDP. Compared with the observed end-of-panel mean value of no more than 7.26%, these estimates suggest that there has been significant public underinvestment in Africa.

Keywords

Public InvestmentEconomic GrowthNonlinearity
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Special Issue 8: Technology Aspects in the Process of Development , December 2016 , pp. 1957 - 1986
Copyright
Copyright © Cambridge University Press 2015 

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