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Does public capital crowd-out or crowd-in private capital in India?

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  • Tarlok Singh

Abstract

This study examines the long-run effects of public capital on private capital and tests the null of Granger non-causality between public and private capital in India. Both single-equation and system estimates of the model consistently suggest the long-run crowding-in effects of public capital. The error-correction as well as over-parameterized level-VAR models consistently suggest uni-directional Granger-causality from public to private capital. The support for the significant crowding-in effects of public capital has important implications for the formulation of long-term growth and development strategies. It underlines the need to accelerate public infrastructure to induce the distortions-free and market-driven increases in private capital and to attract the inflow of foreign direct investment. The inflows of foreign capital have witnessed perceptible increases since the beginning of the 1990s. The geographical and sectoral distributions of FDI inflows remain asymmetric and skewed in favor of the select regions and the services industries. The services-sector-led growth needs to be accompanied by the commensurate performance of the goods-producing, agricultural and industrial, sectors so as to sustain the escalated trajectory of economic growth.

Suggested Citation

  • Tarlok Singh, 2012. "Does public capital crowd-out or crowd-in private capital in India?," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 15(2), pages 109-133.
    • Handle: RePEc:taf:jecprf:v:15:y:2012:i:2:p:109-133
    DOI: 10.1080/17487870.2012.668767
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    Cited by:

    1. Tarlok Singh, 2016. "On the sectoral linkages and pattern of economic growth in India," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 21(2), pages 257-275, April.
    2. Tarlok Singh, 2017. "Ricardian equivalence and the public and private saving nexus in India," Applied Economics, Taylor & Francis Journals, vol. 49(36), pages 3579-3598, August.
    3. Tarlok Singh, 2022. "Economic growth and the state of poverty in India: sectoral and provincial perspectives," Economic Change and Restructuring, Springer, vol. 55(3), pages 1251-1302, August.

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