AN EMPRICAL INVESTIGATION INTO THE EFFECTS OF PUBLIC INVESTMENT EXPENDITURE ON PRIVATE CAPITAL ACCUMULATION: CASE OF THE TURKISH ECONOMY BETWEEN THE YEARS 1963-85

Year 1999, Volume: 17 Issue: 2, 35 - 60, 31.12.1999

Metin Arslan

Abstract

The main focus of
this work is to see whether or not higher public capital accumulation always
results in a crowding out of private investment. Even though it is not
usually seen as such, on neoclassical younds, the composition of public
expenditure is an important factor both in terms of analyzing differential
economic Impacts of public capital on the economy and guiding public invesment
policy. However the present work primarily deals with the impact of an
increase in public investment in infrastructure. For an increase in public
investment in infrastructure nevertheless creates two opposite effects on private
capital accumulation. On the one hand, it crowds out private investment by
raising the national rate above the optimal level chosen by the private sector
agents; and, on the other hand, it also raises the return to
private capital, thereby inducing a crowding-in of private capital
accumulations But the final outcome of these two channels depends upon the degree of
complementarity between public investment and private production, as well as
the level of the public capital stock. The model performance results of the
Turkish case show a high degree of complementarity between public investment in
infrastructure and private capital accumulation. The policy simulation results
suggest that expansionary public policy in the case of infrastructure has
beneficial effects on the economy. However, in the case of state economic
enterprises the converse is true.

Keywords

Public capital expenditure, crowding out, private capital, public policy

References

• Arslan, Metin, 1993. Public Invesfinent and Infrastructure Planning: A Policy Modeling Approach for the Turkish Investment Sector, PhD. Thesis, Colorado State University, Fort Collins, C.O.