ABSTRACT
The aim of this paper to evaluate the relationship between public and private capital formation in 16 economies from Central Eastern and South Eastern Europe by applying panel-cointegration methods to 2000–2017 data. We find a positive public-private capital formation nexus both in the short and the long-run, with pro-cyclicality of private capital formation and negative relevance of the user costs of capital. The results imply that expansionary public investment policy may be effective in boosting private investment both in the short and the long-run, if fit into a financially sustainable framework that limits negative impact of the user cost of capital.
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Notes
1. See Kellermann (Citation2016) for a discussion of the effects of different types of financing public investment.
2. As noted earlier, similar evidence for the long-run relationship has also been offered for the countries in the CEE region (Masten and Grdović Gnip Citation2019).
3. These effects can of course be compounding. For example, Demirel et al.,2017 show, for the case of the Eurozone, that government debt, government expenditure, interest rates and budget deficits all affect private investment negatively.
4. A similar result was found for a sample of 26 EU Member States by Picarelli, Vanlaer, and Marneffe (Citation2019).
Additional information
Notes on contributors
Vassilis Monastiriotis
Vassilis Monastiriotis is the associate professor in political economy at the London School of Economics and Political Science and director of LSEE: Research on South Eastern Europe. He is an economist and economic geographer by training, specializing in three areas of Labour Economics, Economic Geography and Political Economy. He has held visiting positions at Harvard University, the University of Cambridge, Groningen University, the GeoDA Center, and elsewhere. He has received funding from the UK Economic and Social research Council, the British Academy, the Royal Geographic Society, the European Commission, and others. In 2008 he received the Moss Madden Memorial Medal in Regional Science.
Sasa Randjelovic
Sasa Randjelovic is the associate professor in public finance and vice dean for international relations at the University of Belgrade - Faculty of Economics. He is an economist by training, specializing in the areas of Public Economics and Fiscal Policy. He has held visiting fellowship positions at the London School of Economics and Political Science, Free University of Berlin and the visiting professor position at the University of Zagreb – Faculty of Economics and Business. He has received funding from the Erasmus+, Science Fund of the Republic of Serbia, GIZ, and others. In 2013 he received the award for the best doctoral thesis in economics in Serbia, awarded by the Scientific Association of Economists of Serbia.