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Is the Public Investment Multiplier Higher in Developing Countries? An Empirical Exploration
Author:
Mr. Alejandro Izquierdonull

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Mr. Ruy Lama
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Juan Pablo Medinanull

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Jorge Puignull

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Daniel Riera-Crichtonnull

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Mr. Carlos A. Végh Gramontnull

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Guillermo Javier Vuletinnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2019: Issue 289
Language:
English
Publication Date:
20 Dec 2019
DOI:
https://doi.org/10.5089/9781513521114.001
ISBN:
9781513521114
ISSN:
1018-5941
Pages:
47
Keywords:
WP; investment multiplier; Fiscal multiplier; Public investment; Stock of public capital; Crowding-in; multiplier estimate; public investment multiplier; multiplier calculation; government spending multiplier; Public investment spending; Stocks; Government consumption; Private investment; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Over the last decade, empirical studies analyzing macroeconomic conditions that may affect the size of government spending multipliers have flourished. Yet, in spite of their obvious public policy importance, little is known about public investment multipliers. In particular, the clear theoretical implication that public investment multipliers should be higher (lower) the lower (higher) is the initial stock of public capital has not, to the best of our knowledge, been tested. This paper tackles this empirical challenge and finds robust evidence in favor of the above hypothesis: countries with a low initial stock of public capital (as a proportion of GDP) have significantly higher public investment multipliers than countries with a high initial stock of public capital. This key finding seems robust to the sample (European countries, U.S. states, and Argentine provinces) and to the identification method (Blanchard-Perotti, forecast errors, and instrumental variables). Our results thus suggest that public investment in developing countries would carry high returns.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2019: Issue 289