Public and private investment rates of return: evidence for industrialized countries

Abstract

We compute the macroeconomic rates of return of public and private investment implicit in a VAR for 14 European Union countries, Canada, Japan and the United States. Results point mostly to positive effects of public and private investment on output, whereas public investment crowds out private investment in a significant number of countries.

Acknowledgement

UECE is supported by FCT (Fundação para a Ciência e a Tecnologia, Portugal), financed by ERDF and Portuguese funds.

Notes

The opinions expressed are those of the authors and not necessarily those of the ECB or the Eurosystem.

¹Related studies are Argimón et al. (1997) for 14 OECD countries, Pereira and Andraz (2004) for US states and Voss (2002) for the United States and Canada.

²Austria (1960–2005), Belgium (1970–2005), Denmark (1960–2005), Germany (1960–2005), Finland (1960–2005), France (1970–2005), Greece (1960–2005), Ireland (1970–2005), Italy (1970–2005), the Netherlands (1969–2005), Portugal (1960–2005), Spain (1970–2005), Sweden (1970–2004), United Kingdom (1970–2005), Canada (1970–2004), Japan (1970–2004), United States (1970–2004).

³Results are available from the authors.

⁴In somewhat related work, Zou (2006) reports that public and private investment have expansionary effects on Japanese economic growth, whereas in the United States the private investment relevance for growth is higher than the one from public investment.