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    Effects of Government Investment Shocks on Private Investment and Income in India

    Mallick, Jagannath | February 2016
    Abstract
    This paper evaluates the effect of shocks in government investment on private investment and national income, focusing on “crowding-in” or “crowding-out” effect in India. Recent studies do not deal with this issue by taking account of the heterogeneous effect of public investment as regards to infrastructure. Hence, I divide government investment into infrastructure vs non-infrastructure. The study uses structural vector auto-regressions (SVAR) and impulse response-functions analysis to evaluate the dynamic change in private investment and income. The study finds evidence of the crowding-out effect of government investment, which is mainly due to the non-infrastructure part of government investment. Private investment has a larger effect on income than both types of public investment. The effect on income due to the infrastructure component of public investment is larger than the non infrastructure component in both the short-term and medium term. However, government investment in non-infrastructure continued to dominate its infrastructure component during the period of this study. Private investment is vital to achieve higher growth in market-led economies and public investment should play a complementary role. Hence, the Indian government should design policies to attract more investment expenditure in infrastructure and other productive activities such as the development of human capital so as to crowd-in private investment.
    Citation
    Mallick, Jagannath. 2016. Effects of Government Investment Shocks on Private Investment and Income in India. © Indian Council for Research on International Economic Relations. http://hdl.handle.net/11540/9110.
    Keywords
    Development
    Private Sector
    Private Sector Development
    Development Challenges
    Development Financing
    Infrastructure Development
    Private Sector Investments
    Development projects
    Infrastructure projects
    Transport projects
    Private enterprises
    Innovations
    Infrastructure
    Capital
    Partnership
    Limited partnership
    Political participation
    Economic development projects
    Economic forecasting
    Show allCollapse
    Citable URI
    http://hdl.handle.net/11540/9110
    Metadata
    Show full item record
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    Working_Paper_315.pdf (1.004Mb)
    Author
    Mallick, Jagannath
    Theme
    Development
    Private Sector

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    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise