Public and private investments : a VAR analysis of their impact on economic growth in 18 advanced economies

Abstract

This paper examines the macroeconomic returns on public and private investments in 18 advanced economies from 1965 to 2019, using a Vector Autoregressive (VAR) approach. We assess whether higher investment levels drive economic growth and explore the interplay between public and private investments, particularly regarding crowding-in and crowding-out effects. A sensitivity analysis, altering the order of investments in the VAR model, tests the robustness of the results and highlights the dynamic relationships between them. The findings show that private investment consistently stimulates growth, while public investment’s impact varies by country. The analysis underscores the importance of investment sequencing, suggesting the need for flexible policies and a deeper understanding of investment dynamics. This study contributes to the debate on public investment’s role in fostering growth and offers empirical insights for future economic policy and investment strategies.