Abstract

Times-series cross-country approach is used to empirically investigate the relationship between private investment and public investment. We use panel data for the period 1980–2010. Independent variables like public investment, gross domestic product, trade openness, external debt stocks, domestic credit to private sector are integrated in the model. This helps to take into account the impact of gross domestic product, external debts stocks and domestic credit policy on how public investment affects private investment. Empirical results of this paper demonstrate that these independent variables (except, credit to private sector) are significant at 1% level and that the associate parameter ? is equal to -66.972 means that public investment negatively affect private investment. Public investment crowds out private investment. There is a substitution effect between private investment and public investment. Improvements in public expenditures may not directly increase private investment.

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