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Public finance and economic development

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  • Balassa, Bela

Abstract

This paper reports on tests of alternative hypotheses as to the effects of a budget deficit, examines the influence of the size of the government on economic growth, and investigates the impact of public investment on private investment, total investment, and economic growth. The findings have important implications for the developing countries. They show that budget deficits have adverse effects on the balance of payments as well as on domestic investment. It further appears that increases in government consumption adversely affect economic growth. Finally, increases in public investment not only crowd out private investment but tend to lower the efficiency of investment, with adverse effects on economic growth. The conclusions point to the need for reducing budget deficits in developing countries. They further favor lowering government consumption as well as public investment in these countries.

Suggested Citation

  • Balassa, Bela, 1988. "Public finance and economic development," Policy Research Working Paper Series 31, The World Bank.
    • Handle: RePEc:wbk:wbrwps:31
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    References listed on IDEAS

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    1. Mario I. Blejer & Mohsin S. Khan, 1984. "Government Policy and Private Investment in Developing Countries (Politique des pouvoirs publics et investissement privé dans les pays en développement) (Política estatal e inversión privada en lo," IMF Staff Papers, Palgrave Macmillan, vol. 31(2), pages 379-403, June.
    2. Bacon, Robert & Eltis, Walter, 1979. "The Measurement of the Growth of the Non-Market Sector and Its Influence: A Reply to Hadjimatheou and Skouras," Economic Journal, Royal Economic Society, vol. 89(354), pages 402-415, June.
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    Cited by:

    1. Stephen S. Everhart & Mariusz A. Sumlinski, 2001. "Trends in Private Investment in Developing Countries : Statistics for 1970-2000 and the Impact on Private Investment of Corruption and the Quality of Public Investment," World Bank Publications - Books, The World Bank Group, number 13989.
    2. Balassa, Bela, 1990. "Indicative planning in developing countries," Policy Research Working Paper Series 439, The World Bank.
    3. Baghebo Michael & Eniekezimene A. Francis, 2015. "Macroeconomic Policy Dynamics and Private Investment Behaviour in Nigeria," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 4(3), pages 183-192.
    4. Victor E. Oriavwote & Dickson O. Oyovwi, 2013. "Modeling Private Investment Behavior in Nigeria: A Cointegration Approach," Accounting and Finance Research, Sciedu Press, vol. 2(3), pages 1-14, August.
    5. Ahmet Aysan & Gaobo Pang & Marie-Ange Veganzones-Varoudakis, 2009. "Uncertainty, economic reforms and private investment in the Middle East and North Africa," Applied Economics, Taylor & Francis Journals, vol. 41(11), pages 1379-1395.
    6. Chhibber, Ajay & Khalilzadeh-Shirazi, Javad, 1988. "Public finance in adjustment programs," Policy Research Working Paper Series 128, The World Bank.
    7. Owolabi A. & Ibukun – Falayi, Owoola. R., 2015. "Government Sectorial Spending and Its Effect on Nigerian Economic Growth," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(6), pages 883-891, June.
    8. Marie-Ange VEGANZONES-VAROUDAKIS & PANG & Ahmet Faruk AYSAN, 2006. "Assessing the Responsiveness of Private Investment to Economic Reforms: The Case of MENA Countries," Working Papers 200623, CERDI.
    9. Shafik, Nemat, 1990. "Modeling investment behavior in developing countries : an application to Egypt," Policy Research Working Paper Series 452, The World Bank.
    10. Ajay Chhibber & Mansoor Dailami, 1993. "Fiscal Policy and Private Investment in Developing Countries: Recent Evidence on Key Selected Issues," Palgrave Macmillan Books, in: Riccardo Faini & Jaime Melo (ed.), Fiscal Issues in Adjustment in Developing Countries, pages 121-150, Palgrave Macmillan.
    11. Fischer, Stanley, 1989. "The economics of the government budget constraint," Policy Research Working Paper Series 224, The World Bank.
    12. Linn, Johannes F. & Wetzel, Deborah L., 1989. "Public finance, trade, and development : what have we learned?," Policy Research Working Paper Series 181, The World Bank.

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