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Optimal public investment, growth, and consumption: Fresh evidence from African countries

Author

Listed:
  • Kwasi Fosu, A.

    (Institute of Statistical, Social and Economic Research (ISSER), University of Ghana)

  • Getachew, Y.

    (Department of Economics, University of Pretoria)

  • Ziesemer, T.

    (UNU-MERIT)

Abstract

This paper develops a model positing a nonlinear relationship between public investment and growth. The model is then applied to a panel of African countries using nonlinear estimating procedures. The growth-maximizing level of public investment is estimated at about 10 percent of GDP based on System GMM estimation. The paper further runs simulations, obtaining the constant optimal public investment share that maximizes the sum of discounted consumption as between 81 percent and 96 percent of GDP. Compared with the observed end-of-panel mean value of no more than 726 percent, these estimates suggest that there has been significant public under-investment in Africa.

Suggested Citation

  • Kwasi Fosu, A. & Getachew, Y. & Ziesemer, T., 2014. "Optimal public investment, growth, and consumption: Fresh evidence from African countries," MERIT Working Papers 2014-057, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:unumer:2014057
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    More about this item

    Keywords

    Economic growth; Economic develeopment; Consumption; Public investment; Public expenditure; Africa; Panel data; GMM;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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