Government fiscal spending and crowd-out of private investment: An empirical evidence for India
Purpose - The paper evaluates the crowding-in or crowding-out relationship between public and private investment in India, controlling fiscal and monetary variables. Methods - In a flexible accelerator theoretical framework, the paper estimates long and short-run investment dynamics, employing Aut...
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| Format: | Article |
| Language: | English |
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Universitas Islam Indonesia
2021-04-01
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| Series: | Economic Journal of Emerging Markets |
| Subjects: | |
| Online Access: | http://journal.uii.ac.id/JEP/article/view/18292 |
| _version_ | 1828526918312394752 |
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| author | Shiv Shankar Pushpa Trivedi |
| author_facet | Shiv Shankar Pushpa Trivedi |
| author_sort | Shiv Shankar |
| collection | DOAJ |
| description |
Purpose - The paper evaluates the crowding-in or crowding-out relationship between public and private investment in India, controlling fiscal and monetary variables.
Methods - In a flexible accelerator theoretical framework, the paper estimates long and short-run investment dynamics, employing Autoregressive Distributed Lag (ARDL) cointegration approach. We use a back series of national account statistics that incorporates enhanced coverage of the organized corporate sector.
Findings - Our results suggest investment complementarity between the public and private sector at an aggregate and sectoral level over the period 1981-2019. Barring short-run crowding-out in construction and financial services at industry level, public investment stimulates private counterparts, both in the long and short-run. However, fiscal deficit, inflation expectation, and sovereign vulnerability influence private investment adversely. Moreover, the long-run crowding-out bearing of fiscal imbalance is quantitatively higher when the public sector invests in mining and manufacturing and insignificant with infrastructure.
Implication - Sizable infrastructure investment as a proportion of government finances would moderate the adverse impact of the deficit on private investment. Further, quality fiscal adjustments and containing inflation would enhance private investment activities.
Originality - Besides aggregate and sectoral levels, the study also evaluates the impact of industry-level public investment on private capital expenditure. This paper also incorporates derived variables in the regression framework using statistical filters and the principal component technique.
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| first_indexed | 2024-12-11T21:31:42Z |
| format | Article |
| id | doaj.art-d95067e25c184b5a8fbe6d091c89af75 |
| institution | Directory Open Access Journal |
| issn | 2086-3128 2502-180X |
| language | English |
| last_indexed | 2024-12-11T21:31:42Z |
| publishDate | 2021-04-01 |
| publisher | Universitas Islam Indonesia |
| record_format | Article |
| series | Economic Journal of Emerging Markets |
| spelling | doaj.art-d95067e25c184b5a8fbe6d091c89af752022-12-22T00:50:10ZengUniversitas Islam IndonesiaEconomic Journal of Emerging Markets2086-31282502-180X2021-04-0113110.20885/ejem.vol13.iss1.art814541Government fiscal spending and crowd-out of private investment: An empirical evidence for IndiaShiv Shankar0Pushpa Trivedi1Department of Statistics and Information Management, Reserve Bank of India, Mumbai, IndiaDepartment of Humanities and Social Sciences, Indian Institute of Technology Bombay, Mumbai, India Purpose - The paper evaluates the crowding-in or crowding-out relationship between public and private investment in India, controlling fiscal and monetary variables. Methods - In a flexible accelerator theoretical framework, the paper estimates long and short-run investment dynamics, employing Autoregressive Distributed Lag (ARDL) cointegration approach. We use a back series of national account statistics that incorporates enhanced coverage of the organized corporate sector. Findings - Our results suggest investment complementarity between the public and private sector at an aggregate and sectoral level over the period 1981-2019. Barring short-run crowding-out in construction and financial services at industry level, public investment stimulates private counterparts, both in the long and short-run. However, fiscal deficit, inflation expectation, and sovereign vulnerability influence private investment adversely. Moreover, the long-run crowding-out bearing of fiscal imbalance is quantitatively higher when the public sector invests in mining and manufacturing and insignificant with infrastructure. Implication - Sizable infrastructure investment as a proportion of government finances would moderate the adverse impact of the deficit on private investment. Further, quality fiscal adjustments and containing inflation would enhance private investment activities. Originality - Besides aggregate and sectoral levels, the study also evaluates the impact of industry-level public investment on private capital expenditure. This paper also incorporates derived variables in the regression framework using statistical filters and the principal component technique. http://journal.uii.ac.id/JEP/article/view/18292Public investmentprivate investmentcrowding-outstatistical filter |
| spellingShingle | Shiv Shankar Pushpa Trivedi Government fiscal spending and crowd-out of private investment: An empirical evidence for India Economic Journal of Emerging Markets Public investment private investment crowding-out statistical filter |
| title | Government fiscal spending and crowd-out of private investment: An empirical evidence for India |
| title_full | Government fiscal spending and crowd-out of private investment: An empirical evidence for India |
| title_fullStr | Government fiscal spending and crowd-out of private investment: An empirical evidence for India |
| title_full_unstemmed | Government fiscal spending and crowd-out of private investment: An empirical evidence for India |
| title_short | Government fiscal spending and crowd-out of private investment: An empirical evidence for India |
| title_sort | government fiscal spending and crowd out of private investment an empirical evidence for india |
| topic | Public investment private investment crowding-out statistical filter |
| url | http://journal.uii.ac.id/JEP/article/view/18292 |
| work_keys_str_mv | AT shivshankar governmentfiscalspendingandcrowdoutofprivateinvestmentanempiricalevidenceforindia AT pushpatrivedi governmentfiscalspendingandcrowdoutofprivateinvestmentanempiricalevidenceforindia |