AN EMPRICAL INVESTIGATION INTO THE EFFECTS OF PUBLIC INVESTMENT EXPENDITURE ON PRIVATE CAPITAL ACCUMULATION: CASE OF THE TURKISH ECONOMY BETWEEN THE YEARS 1963-85

Authors : Metin Arslan

Pages : 35-60

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Publication Date : 1999-12-31

Article Type : Research

Abstract :The main focus of this work is to see whether or not higher public capital accumulation always results in a crowding out of private investment. Even though it is not usually seen as such, on neoclassical younds, the composition of public expenditure is an important factor both in terms of analyzing differential economic Impacts of public capital on the economy and guiding public invesment policy. However the present work primarily deals with the impact of an increase in public investment in infrastructure. For an increase in public investment in infrastructure nevertheless creates two opposite effects on private capital accumulation. On the one hand, it crowds out private investment by raising the national rate above the optimal level chosen by the private sector agents; and, on the other hand, it also raises the return to private capital, thereby inducing a crowding-in of private capital accumulations But the final outcome of these two channels depends upon the degree of complementarity between public investment and private production, as well as the level of the public capital stock. The model performance results of the Turkish case show a high degree of complementarity between public investment in infrastructure and private capital accumulation. The policy simulation results suggest that expansionary public policy in the case of infrastructure has beneficial effects on the economy. However, in the case of state economic enterprises the converse is true.
Keywords : Public capital expenditure, crowding out, private capital, public policy