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OPTIMAL PUBLIC INVESTMENT, GROWTH, AND CONSUMPTION: EVIDENCE FROM AFRICAN COUNTRIES

  • Augustin Kwasi Fosu (a1), Yoseph Yilma Getachew (a2) and Thomas H.W. Ziesemer (a3)

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% 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 8.1% and 9.6% of GDP. Compared with the observed end-of-panel mean value of no more than 7.26%, these estimates suggest that there has been significant public underinvestment in Africa.

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Corresponding author

Address correspondence to: Thomas H.W. Ziesemer, Department of Economics and UNU-MERIT, Maastricht University, Maastricht, the Netherlands; e-mail: t.ziesemer@maastrichtuniversity.nl.

References

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