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The relationship between public and private capital in emerging Europe

Author

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  • Monastiriotis, Vassilis
  • Randjelovic, Sasa

Abstract

The aim of this paper to evaluate the relationship between public and private capital formation in 16 economies from Central Eastern and South Eastern Europe by applying panel-cointegration methods to 2000–2017 data. We find a positive public-private capital formation nexus both in the short and the long-run, with pro-cyclicality of private capital formation and negative relevance of the user costs of capital. The results imply that expansionary public investment policy may be effective in boosting private investment both in the short and the long-run, if fit into a financially sustainable framework that limits negative impact of the user cost of capital.

Suggested Citation

  • Monastiriotis, Vassilis & Randjelovic, Sasa, 2023. "The relationship between public and private capital in emerging Europe," LSE Research Online Documents on Economics 118277, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:118277
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    File URL: http://eprints.lse.ac.uk/118277/
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    References listed on IDEAS

    as
    1. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
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    More about this item

    Keywords

    crowding-in hypothesis; emerging Europe; private investment; public investment;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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