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The Public–Private Investment Nexus In India: Evidence From A Policy Simulation Approach

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  • Sajad Ahmad Bhat
  • Javed Ahmad Bhat
  • Taufeeq Ajaz

Abstract

This study investigates the influence of public investment on private investment in India, at both the aggregate and Sectoral levels and under two different modes of deficit financing – monetisation and commercial borrowing – in an eclectic macroeconometric modelling framework. Using Generalised Method of Moments (GMM), the two simulation exercises con-ducted in the study highlight the crowding-in effect of public investment on aggregate private investment, irrespective of the mode of financing. The favourable accelerator effect and the complementary effect are found to outweigh the deleterious interest effect in both simulation exercises. At the Sectoral level, public investment is found to most strongly and positively affect private investment in manufacturing, followed by agriculture, the service sector, and finally infrastructure. The impact of public invest-ment on the other sectors included in the model accords well with theoretical expec-tations.

Suggested Citation

  • Sajad Ahmad Bhat & Javed Ahmad Bhat & Taufeeq Ajaz, 2020. "The Public–Private Investment Nexus In India: Evidence From A Policy Simulation Approach," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 65(224), pages 101-128, January –.
    • Handle: RePEc:beo:journl:v:65:y:2020:i:224:p:101-128
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    More about this item

    Keywords

    Public investment; Private investment; crowding in; crowding out; In-dia;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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