Investing in Growth

Abstract

Policymakers in developing countries often point to insufficient infrastructure as a constraint on their countries’ growth prospects. But more important than whether a country can expand its public investment in infrastructure is whether it should. Unfortunately, the results of studies on public investment’s impact on growth are unclear, leading many to conclude that it is unproductive. This article revisits this debate and, using estimates of public capital for 48 advanced and developing economies during 1960–2001, finds that public investment generally has a positive impact on growth. Furthermore, the results indicate that advanced economies use public investment more as a demand management tool — to counter the business cycle — than do emerging and developing economies, where it is more likely used to boost long-term growth prospects.