Revisiting Public Investment Multipliers

Investment Rating - The report suggests a positive outlook on public investment in emerging market and developing economies (EMDEs), indicating that public investment can significantly boost economic growth [3][12]. Core Insights - Public investment can increase output by 1.1 percent after five years for every 1 percent of GDP increase in public investment, with potential increases up to 1.6 percent in cases of high efficiency and ample fiscal space [12][13]. - The effectiveness of public investment multipliers is greater during recessions and in capital-scarce economies, with public investment also having crowding-in effects on private investment [12][13]. - The report emphasizes the importance of public investment efficiency and fiscal space in determining the magnitude of its impact on economic growth [12][13]. Summary by Sections Introduction - Public investment is a crucial policy tool for fostering economic growth in EMDEs, especially in the context of significant investment gaps and a slump in private investment [7][8]. Methodology - The report employs a new approach to measure public investment shocks based on cyclically adjusted government investment, analyzing data from 129 countries over the period from 1980 to 2019 [10][36]. Empirical Results - Public investment shocks lead to a gradual increase in output, with a notable increase from 0.4 percent after one year to 1.1 percent after five years for a 1 percent of GDP increase in public investment [55]. - The report highlights significant heterogeneity in the effects of public investment across different EMDEs, with higher-income EMDEs experiencing stronger impacts compared to low-income countries [56].