亞開(kāi)行-新興市場(chǎng)和發(fā)展中經(jīng)濟(jì)體的公共與私人投資乘數(shù)：以亞洲為重點(diǎn)的跨國(guó)分析（英）

PUBLICVERSUSPRIVATE

INVESTMENTMULTIPLIERSINEMERGINGMARKETANDDEVELOPINGECONOMIES

CROSS-COUNTRYANALYSISWITHAFOCUSONASIA

Jo?oTovarJalles,DonghyunPark,andIrfanQureshi

NO.737

ADBECONOMICS

August2024

WORKINGPAPERSERIES

ASIANDEVELOPMENTBANK

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PublicversusPrivateInvestmentMultipliers

inEmergingMarketandDevelopingEconomies:Cross-CountryAnalysiswithaFocusonAsia

Jo?oTovarJalles,DonghyunPark,andIrfanQureshi

No.737|August2024

TheADBEconomicsWorkingPaperSeries

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Jo?oTovarJalles(joaojalles@)isaseniorassociateprofessorofeconomicsattheUniversityofLisbon.DonghyunPark(dpark@)

isaneconomicadvisorattheEconomicResearchandDevelopmentImpactDepartment,

AsianDevelopmentBank(ADB).IrfanQureshi

(iqureshi@)isapublicmanagementspecialistintheSectorsGroupofADB.

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ABSTRACT

Thispaperanalyzesthegrowthimpactofpublicandprivateinvestmentshocksbasedon

alargesampleofemerginganddevelopingcountriesovertheperiod1980–2021withaparticularfocusontheAsianregion.Wedevelopnewmeasuresofinvestmentshocksbasedoncyclicallyadjustedinvestmentdata.Estimationsusinglocalprojectionssuggestthatpublicinvestmentshocksplayamuchgreaterroleinboostingeconomicgrowthincomparisonwithprivateinvestmentshocks.Inemergingmarketanddevelopingeconomies(EMDEs)(includinginAsia),thegrowthresponsetoinvestmentshocksispositiveandmuchstrongerinrecessionsrelativetoeconomicexpansions.Finally,publicinvestmentshocksinEMDEandAsiansamplescrowd-inprivateinvestmentandprivateconsumption.

Keywords:fiscalmultipliers,publicinvestment,privateinvestmentJELcodes:C33,E22,H30,H50

1.Introduction

Publicinvestmentisconsideredoneofthekeypolicyleverstofostereconomicgrowth,particularlyinemergingmarketanddevelopingeconomies(EMDEs),asitplaysavitalroleindevelopinginfrastructure,suchasroadsandutilities,whichiscriticalforreducingtransactioncostsandimprovingefficiency(WorldBank2017).Italsoaddressesthemarketfailureofunder-investmentinareaswheretheprivatesectormayhesitatetoinvestduetohighrisksorlowprivatereturns.Moreover,governmentinvestmentinhealth,education,andsocialservicesispivotalforbuildinghumancapital,akeyingredientforaproductiveworkforceandsustainableeconomicgrowth.

Ontheotherhand,privateinvestmentisdrivenbyprofitmotive,withefficiencyandinnovationleadingtoenhancedproductivityandcompetitiveness.Privateinvestmentinnewventuresandexpansionprojectscreatesjobsandincreasesincomes,which,inturn,stimulatefurtherconsumptionandinvestment.Additionally,privateinvestmentplaysasignificantroleinthedevelopmentoffinancialmarkets,improvingaccesstofinanceandfosteringmoreinvestments.DeGregorio(1992)hasshownitspositiveimpactoneconomicgrowththroughmechanismslikecapitalaccumulationandefficiencygains.

Againstthisbackdrop,itisnotsurprisingthatalargeeconomicliteraturehasemergedtoevaluatethemacroeconomiceffectsofinvestmentingeneralandpublicinvestmentinparticular.First,publicinvestmentinbuildingandmaintainingkeyinfrastructuresuchasroads,bridges,ports,airports,andenergyfacilitiesisessential.Thisinfrastructurereducestransportationcosts,improvesconnectivity,andenhancestheoverallbusinessenvironment.Forexample,theextensivehigh-speedrailnetwork

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expansionofthePeople’sRepublicofChina(PRC)hasnotonlyimprovedconnectivitybutalsospurredeconomicactivityacrossthecountry(Liu,Niu,andHan2019).

Second,publicinvestmentineducationandhealthcarecontributesgreatlytohumancapitaldevelopment.Suchinvestmentsenhancethequalityandproductivityoftheworkforce,contributingtoeconomicgrowth(HanushekandWoessmann2012).PublicinvestmentsineducationplayedamajorroleinfosteringahighlyskilledlaborforceandinnovationinhighlysuccessfulAsiancountriessuchastheRepublicofKorea.

Third,publicinvestmentbenefitstechnologyandinnovation.GovernmentsacrossAsiahaverecognizedtheimportanceofsupportingtechnology-intensiveindustriesthroughresearchgrantsandsubsidies(AsianDevelopmentBank[ADB]2018).ThisapproachhelpedcountriessuchasSingaporebecomeglobaltechnologyhubs.

Fourth,publicinvestmentcanstrategicallyaddressregionaldisparities.Bypromotingthedevelopmentofless-developedareas,itcanalleviatepoverty,stimulateeconomicactivity,andreducerural–to–urbanmigration(WorldBank2016).Forinstance,India'sinvestmentinruralinfrastructureandemploymentgenerationprogramsaimstoaddressregionalimbalances.

Fifth,inaneraofclimatechangeanddisasters,publicinvestmentindisasterpreparedness,environmentalsustainability,andcleanenergyinfrastructureisessentialforlong-termsustainabledevelopment.Asianeconomiesincreasinglyacknowledgetheimportanceofinvestinginrenewableenergysourcesandclimateresiliencemeasures(ADB2017).

Sixth,publicinvestmentactsasacatalystforprivatesectordevelopment.Governmentscaninvestinvitalinfrastructureorprovideincentivesforprivatefirms,

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encouragingthemtoinvest,expand,andcreatejobs(WooandKumar2015).Thissynergybetweenpublicandprivateinvestmentcanbeapowerfuldriverofeconomicdevelopment.

Seventh,publicinvestmentinsocialsafetynets,healthcare,andeducationdirectlyimpactspovertyreductionbyimprovinglivingstandardsandcreatingopportunitiesfordisadvantagedgroups(Koseetal.2017).ProgramslikeconditionalcashtransfersincountrieslikeIndonesiaandthePhilippineshavedemonstratedthepoverty-reductionpotentialofpublicinvestment.

Finally,asAsianeconomiesheavilyrelyoninternationaltrade,publicinvestmentintrade-relatedinfrastructure,suchasportsandlogisticsfacilities,enhancesanation'sabilitytoengageinglobaltradeandattractforeigninvestment(ADB2018).Examplesincludethedevelopmentofexport-processingzonesinBangladeshandthePRC.

Theempiricalestimatesofpublicinvestmentmultipliersreportedtodate,however,differsignificantly,dependingonthesampleofcountriesandtimelineinvestigated,estimationmethodology,incorporationofnon-lineareffects,andfiscalshockidentificationstrategies(Section2).Themainprobleminperformingsuchresearchrestsinthedifficultyofidentifyingexogenouschangesinpublicspendingthatareuncorrelatedwithcontemporaneousmacroeconomicshocks.

Consideringthesecaveats,weaimtocontributetothisliteratureinseveralways.First,weuseupdateddataonpublic(andprivate)investmentcoveringalargesampleof98EMDEs,including20Asianeconomies,overalong-timespan,from1980to2021.Previousgeneralizationsofresearchthatonlylookedatsamplesofemergingmarketeconomiesto“developingcountries”weremisleading.Ourresultsarethusbasedona

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broader,moreheterogeneoussampleofcountriesandoveralongertimespancomparedtopreviousstudies,whicheitherfocusedonspecificgeographicalregions,singlecountries,orovershorterandlessrecenttimehorizons.Interalia,ourbroadersampleallowsustoexploreheterogeneityacrossEMDEs.Second,weintroduceanewapproachtomeasuringspendingshocksforpublic(andprivate)investment.Underthisapproach,weconstructameasureofcyclicallyadjustedrealpublicinvestment(CAPubI)andcyclicallyadjustedrealprivateinvestment(CAPriI).Spendingshockscanthenbemeasuredaslargedeviationsfromthevariationinthesevariables.

Afteridentificationoftheinvestmentshocks,weusethelocalprojectionsapproachofJordà(2005)totraceouttheshort-andmedium-runresponsesofrealgrossdomesticproduct(GDP).Analysesbasedonlocalprojectionsindicatethatpublicinvestmentshocksenhanceeconomicgrowthsignificantlymorethanprivateinvestmentshocks.InEMDEs,particularlyinAsia,theimpactofinvestmentshocksongrowthismorepronouncedandpositiveduringdownturnsthanupturns.Moreover,inEMDEsoverallandespeciallyAsianEMDEs,publicinvestmentshockstendtostimulatebothprivateinvestmentandconsumption.

Therestofthepaperisstructuredasfollows.Section2reviewstheempiricalliterature,withanemphasisoncross-countrystudiesdiscussingtheassociationbetweenpublicandprivateinvestmentshocksandmacroeconomicconditions.Section3presentstheframeworkfortheidentificationofpublicandprivateinvestmentshocks,discussesthedataandestimationmethodology,andcomparesourapproachtothatofpreviousscholarlywork.Section4reportsthestylizedfactswhileSection5presentstheempiricalresults.Section6concludes.

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2.LiteratureReview

Theresearchongovernmentspendingmultipliersand,moregenerally,fiscalmultipliers,

isvoluminous(Batinietal.2014;Galí2020;GhassibeandZanetti2022;Barnichon,Debortolo,andMatthes2022).Ourpaperismostcloselyrelatedtotheliteraturethatestimatesgovernmentspendingmultipliersforpublicinvestment.1Whileestimatesvaryfromstudytostudy,thereappearstobeanemergingconsensusthatpublicinvestmentmultipliersarelargerthanpublicconsumptionmultipliers,owingtotheformer’spositiveimpactontheproductivityoflaborandprivatecapital,aswellastheproductivecapacityoftheeconomyoverthemediumterm.

Inthisrespect,andconsistentwiththislineofargument,theearlyliteratureontheimpactofpublicinvestmentoneconomicgrowthwasmodeledinthecontextoftheendogenousgrowthframeworkinBarro(1990),BarroandSala-i-Martin(1992),Futagami,Morita,andShibata(1993),GlommandRavikumar(1994),andTurnovsky

(1997).2Theimplicationsofpublicinvestmentforgrowthanddevelopmenthavealsobeenmodeledwithmorecompleximpactchannels,includingmodelsincorporatingforeignaidandaid-fundedpublicinvestment(AdamandBevan2006;Cerra,Tekin,andTurnovsky2008;Berg,Gottschalk,etal.2010;Berg,Mirzoev,etal.2010;ChatterjeeandTurnovsky2007),infrastructurenetworks(Agénor2010),andpublicdebtaccumulation(Buffieetal.2012;Greiner,Semmler,andGong2005;Greiner2007),anddynamic

1Furcerietal.(2022),forexample,useprojectionsfromIMFWorldEconomicOutlookpublicationstomeasurepublicinvestmentshocksasthedifferencebetweenthegrowthrateofactualrealpublicinvestmentandtheratefromanalysts’forecastasofOctoberofthesameyear.

2SeealsoGramlich(1994)forareviewoftheearlierliteratureonpublicinvestmentanditsmacroeconomicimplications.

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stochasticgeneralequilibrium(DSGE)modelsthatendogenizepublicsectorinefficiencies(GanelliandTervala2020).

Thegrowingavailabilityofdatahasfacilitatedthesurgeinempiricalstudiesinvestigatingtheinvestment-growthnexus.PereiraandAndraz(2013),RompandDeHaan(2007)andBomandLigthart(2014)providecomprehensiveoverviewsoftheliteratureestimatingthegrowtheffectsofpublicinvestment.BomandLigthart(2014)reportthattheestimatesoftheoutputelasticityofpubliccapitalrangewidely,from–1.7to2.04,withtheaverageelasticityvalueof0.106.Inalargesampleof102developingcountriesovertheperiod1970–2010,Kraay(2014)findthatthe1-yearspendingmultiplierisreasonablypreciselyestimatedtobearound0.4.Related,Gbohoui

(2021)investigatehowincreasesinpublicinvestmenthavelargerandlonger-lastingeffectsonoutput,investment,andemployment,withmultipliersabove2duringperiodsofhighuncertainty.

TheempiricalliteratureonpublicinvestmentmultipliersinEMDEsismorelimitedbutalsofindssignificantgrowthimpactsofpublicinvestmentintheshortandmediumrun(Furcerietal.2022,Miyamotoetal.2020).Ramey(2019)reviewsestimatesoffiscalmultipliersintheliterature,mostlyforadvancedeconomies,andreportsthattheytendtofallintherangeof0.6to1.Despiteheterogeneityinestimationmethodsacrossstudies,DeJongetal.(2017)noteseveralcommonresults.First,publiccapitalcontributespositivelytooutput,witharelativelystrongerimpactofcoreinfrastructuresuchasroads,railways,andtelecommunications.Second,theaggregatecountry-levelimpactofpublicinvestmentisstrongincomparisonwithintra-countryregionalimpacts,implyingsignificantspilloverandnetworkeffectsacrossregionsofacountry.Third,theimpactof

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publiccapitalongrowthmaydeclineovertime.EconometricandDSGE-basedestimatesalsoconsistentlyfindthatpublicinvestmentmultipliersarelargerthanthoseforgovernmentconsumption(Coenen,Straub,andTrabandt2012,AuerbachandGorodnichenko2013,LeducandWilson2012,EdenandKraay2014,Calderonetal.2015,Furcerietal.2022,Izquierdoetal.2019,GanelliandTervala2020).

GivenAsia’schangingdynamics,includingincreasingopenness,theriseofmanufacturing,andshiftingeconomicstructures,theregionmightprovideinterestinginsightsintotherelationshipbetweenpublicinvestmentandgrowth.Inthisconnection,GaoandZhang(2018)assessedfiscalpolicy,greengrowth,andtheSustainableDevelopmentGoalsinAsiaandthePacific.Atabroaderlevel,Clements,Sanjeev,andJalles(2022)discusshowfiscalpolicycanhelpfostermoreinclusivegrowthindevelopingAsia,lookingbothviaacomparativeanalysiswithLatinAmericaandalsothroughdifferenttypesofspending.Thepaperfindsthateliminatinginefficienciesinhealth,education,andpublicinvestmentwouldgeneratetheequivalentof3%ofGDP.Curtailingfossilfuelsubsidiescouldalsogenerateresourcesformoreredistributivespending.Heshmati,Kim,andPark(2015)contendthatAsiancountriesemployedfiscalpolicytostrengthenthefundamentalsformacroeconomicstabilityand,asaresult,economicgrowthbyavoidingbudgetdeficits.

FiscalpolicyhasalsocontributedtoAsianprosperitythroughmassiveexpendituresingrowth-promotinginfrastructureandeducation,whichhaveincreasedthestockofphysicalandhumancapital.Somecountry-specificstudiesexaminetheimpactofpublicinvestmentmultipliersinvariousAsiannations.Ilzetzki,Mendoza,andVégh

(2013)exploredthesizeoffiscalmultipliersofthePRC.

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TheIndianexperiencewithpublicinvestmentanditseffectsoneconomicgrowthhasbeenasubjectofinterest.AMallick(2016)studyshocksingovernmentinvestmentonprivateinvestmentandnationalincome,focusingonthe“crowding-in”or“crowding-out”effectinIndia.Theanalysisfindsevidenceofacrowding-outimpactofgovernmentspending,mostlyowingtothenon-infrastructurecomponent.Privateinvestmenthasagreaterimpactonincomethaneitherformofgovernmentalinvestment.Intheshortandmediumrun,theinfrastructurecomponentofpublicinvestmenthasagreaterimpactonincomethanthenon-infrastructurecomponentdoes.However,governmentinvestmentinnon-infrastructureremaineddominantintheinfrastructurecomponent.RangarajanandSrivastava(2008)examinedfiscalpolicyandeconomicgrowthinIndia.

VariousstudiesinvestigatetheimpactofJapanesepublicinvestment.Forinstance,FurukawaandNaoi(2016)examinedthemacroeconomicimpactofpublicinvestmentonJapan'sregionaleconomies.ChoiandSon(2016)investigatehowexpansionarygovernmentspendingshocksintheRepublicofKoreainfluencedGDPgrowthsincethe1980sthroughthelensesoftime-varyingparameterstructuralvectorautoregression(TVP-SVAR)approach.Haughton,Jitsuchon,andRukumnuaykit(2016)examinetheeffectivenessofThailand'spolicyresponsetotheglobalfinancialcrisis,focusinginparticularongovernmentspending.

Theobservedheterogeneityintheestimatesofgovernmentspendingmultipliersacrosscountriespromptedadditionalempiricalinquiryintothefactorsthatcanexplainthesedifferences.Therecouldbeseveralnonlinearitiesatplay.Inasynthesisreview,Izquierdoetal.(2019)notethatcyclicalconditions,exchangerateflexibility,debtlevels,monetarypolicystance,publicinvestmentefficiency,institutions,andtradeopennessare

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importantdeterminantsofthesizeofmultipliers.Furthermore,theliteratureclearlypointstolargerfiscalmultipliersduringrecessions(AuerbachandGorodnichenko2012a,2012b,and2013;Riera-Crichton,Vegh,andVuletin2015;alsothemeta-analysisinGechertandRannenberg2018);duringperiodsofeasiermonetarypolicy(Christiano,Eichenbaum,andRebelo2011;Coenenetal.2012);incountrieswithfixedexchangerateregimes(Ilzetzki,Mendoza,andVégh2013);inlow-debtcountries(Ilzetzki,Mendoza,andVégh2013;Huidrometal.2020);andcountrieslessopentotrade(Ilzetzki,Mendoza,andVégh2013;Gonzalez-Garcia,Lemus,andMrkaic2013).

Inaddition,recentempiricalevidencesuggeststhatthesizeoffiscalmultipliersmayalsobepositivelyassociatedwithmacroeconomicuncertainty(Gbohoui2021),financialdevelopment(Koh2017),aswellasoveralleconomicdevelopment(Ilzetzkietal.2013),andnegativelyassociatedwiththedegreeofinformalityintheeconomy(Colomboetal.2022).Barnichon,Debortolo,andMatthes(2022)alsoarguethatthedirectionoffiscalinterventionsiscritical.Morespecifically,theyfindthatthecontractionarymultiplierisabove1,reachinghighermagnitudesinrecessions.Ontheotherhand,theexpansionarymultiplierissignificantlybelow1,regardlessofthecyclicalpositionoftheeconomy.AccordingtoGasparetal.(2015),economieswithstrongerinfrastructuregovernancetendtohaveloweraverageincrementalpublic-capital-to-outputratios,resultinginmoregrowth“bang”fortheirinvestment“buck.”Theyalsofoundthateconomieswithhigherpublicinvestmentefficiencyreceivegreateroutputdividends.Incontrast,poorinfrastructuregovernancemightresultinincreasedpublicdebtwithoutanygrowthdividend.Governanceissuesinprojectexecutioncanlimittheamountofpublic

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capitalcreatedbyaunitofpublicinvestment,whileapoorprojectselectionprocesscanresultinthecreationof“whiteelephants”thathavemarginalcontributiontotheeconomy.

Moregenerally,theliteraturesuggeststhatastrongcost-benefitanalysisisneededtoselectandprioritizeprojectsthatwouldmeaningfullyraisegrowthwithoutjeopardizingfiscalsustainability.Anotherimportantfactorthatmayexplaintheproductivityofpublicinvestmentistheinitialstockofpubliccapital.Amongtherecentstudies,Izquierdoetal.(2019)findthatpublicinvestmentmultipliersarehigherincountrieswitharelativelylowlevelofinitialpubliccapitalstock(asashareofGDP).Thelevelofpublicinvestmentandpubliccapitalcanbeexcessiveifresourcesaredivertedawayfromothermoreproductiveusesorcrowdoutprivateinvestment(Devarajan,Swaroop,andZou1996;CanningandPedroni2008).

Thislineofargumentisrelatedtothemoregeneralstrandoftheliteratureemphasizingthecriticalroleofpublicinvestmentefficiencyindeterminingitsmacroeconomiceffects.Dabla-Norrisetal.(2012)findthatthequalityofpublicinvestmentmanagementpracticesvarieswidelyinaglobalsampleof71countries.Guptaetal.(2014)compute“efficiencyadjusted”publiccapitalstocksandfindthatthegrowtheffectsofefficientpublicinvestmentarehigher.TheimpactofefficiencyontheproductivityofpublicinvestmentisalsoevaluatedempiricallyinLeeper,Walker,andYang(2010);CavalloandDaude(2011);LeducandWilson(2012);Izquierdoetal.

(2018);Bergetal.(2013);Miyamotoetal.(2020);andFurcerietal.(2022).

Finally,itshouldbenotedthattheobservedheterogeneityintheestimatesoffiscalspendingmultipliersalsoreflectsdifferencesinthemethodologiesusedtoidentifyexogenousshocksinpublicinvestment.Thesealternativeshockidentificationstrategies

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arediscussedinmoredetailinthenextsection,alongwiththenewmethoddevelopedinthispaper.

3.MethodologyandData

3.1.ConstructingGovernmentSpendingShocks

Areviewofexistingpublicspendingshockidentificationframeworks.Severalstrategieshavebeendevisedintheliteraturetoidentifygovernmentspendingshocks.Amongthemostwidelyappliedmethods,anapproachbasedon(structural)vectorautoregressionframeworksreliesonrecursiveidentificationschemesandotherparameterrestrictionswiththeassumptionthatgovernmentspendingdoesnotrespondtomacroeconomicshocksinthesameperiod(BlanchardandPerotti2002,Ilzetzkietal.

2013).BesidesthetimingassumptionsbehindtheunderlyingCholeskyidentificationscheme,whicharelesscompellingforannual-frequencydata,thisapproachisagonisticaboutanticipationeffectsoffiscalspending.

Asecondapproach,byKraay(2012,2014),istoinstrumentgovernmentshockswithpredicteddisbursementsfromapprovedloansfromofficialcreditors—suchastheWorldBankandothermultilateralandbilateralaidagencies—asexogenoussourcesoffluctuationsingovernmentspending.Thisapproachisdifficulttoreplicate,asitrequiresacalculationof“predicted”disbursementsforeachloan,whichcanthenbeconsideredasexogenousspendingshocks.

Athirdapproachisthe“naturalexperiment”approachproposedbyBarro(1981)andfurtherdevelopedbyRameyinsubsequentpapers(RameyandShapiro1998,RameyandZubairy2018).Thisframeworkusesfluctuationsinmilitaryexpenditurestoidentifygovernmentspendingshocks.Thisapproach,however,wouldnotworkwellfor

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EMDEs,asthemilitaryspendingvariabledoesnotchangemuchfromoneyeartothenext.

Finally,inmorerecentempiricalresearch,AuerbachandGorodnichenko(2012a,2012b)useforecasterrorstoexaminehowthefiscalmultipliervarieswiththebusinesscycleinOrganisationforEconomicCo-operationandDevelopment(OECD)economies.Thismeasureofgovernmentshocksiscomputedasthedifferencebetweentheactualpublicspendingandthepublicspendingexpectedpreviouslybyprofessionalforecasters.Usingforecasterror-basedshocks,Abiad,Furceri,andTopalova(2016)identifythecausalimpactofhigherpublicinvestmentonoutput,privateinvestment,unemployment,andpublicdebtratios.Theauthorsarguethatthismethodologyovercomestheobstaclesthatoftenconfoundthecausalestimationoftheeffectoffiscalpolicyoneconomicperformance.TheAuerbachandGorodnichenko(AG)approachwasutilizedalsoinHonda,Miyamoto,andTaniguchi(2020);Miyamotoetal.(2020);andFurcerietal.(2022).Thismethodologyhastheadvantageofovercomingtheproblemof“fiscalforesight”(ForniandGambetti2010;Leeper,Richter,andWalker2012,Leeper,Walker,andYang2013;andZeevandPappa2017).

Public(andprivate)spendingshocksbasedoncyclicallyadjustedpublicvariables.InthispaperwebuildontheworkofAlesinaandArdagna(2010)andothersthatassesstheeffectsofchangesincyclicallyadjusted(fiscal)variablesongrowth.Whatisnewinourapproachisthewayinwhichweidentifyspendingshocksforpublic(andprivate)investment.Theshockidentificationframeworkinvolvesseveralsteps.

First,weestimateoutputelast