## Crowding-Out or Crowding-In? Public and Private Investment in India

_IMF Working Papers, December 17, 2015_

## Source details

**Canonical URL:** [Crowding-Out or Crowding-In? Public and Private Investment in India](https://www.imf.org/en/publications/wp/issues/2016/12/31/crowding-out-or-crowding-in-public-and-private-investment-in-india-43470)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/31/crowding-out-or-crowding-in-public-and-private-investment-in-india-43470/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/31/crowding-out-or-crowding-in-public-and-private-investment-in-india-43470/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/31/crowding-out-or-crowding-in-public-and-private-investment-in-india-43470/bundle-manifest.json)

## Bibliographic details
- Authors: Girish Bahal, Mehdi Raissi, Volodymyr Tulin
- Published: December 17, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513541655.001

---

### Overview
- Title: Crowding-Out or Crowding-In? Public and Private Investment in India
- Authors: Girish Bahal, Mehdi Raissi, Volodymyr Tulin
- Date: December 17, 2015
- Core question: Relationship between public-capital accumulation and private investment in India across different historical periods and frequencies.

### Data and Methods
- Novel quarterly dataset constructed for aggregate public and private investment in India over the period 1996Q2-2015Q1 using investment-project data from the CapEx-CMIE database.
- Long-run, theory-driven relationship embedded in the model.
- Estimated a range of Structural Vector Error Correction Models (SVECMs).
- Identification: decomposing shocks into those with transitory and permanent effects.

### Key Findings
- Over 1950-2012: public-capital accumulation crowds out private investment in India.
- Post 1980 (sample restricted): public investment is complementary to private investment (the opposite result).
- Quarterly analysis since 1996Q2: public-capital accumulation crowds in private investment.
- The change in the public–private investment relationship is most likely attributable to policy reforms that started during the early 1980s and gained momentum after the 1991 crises.

### Interpretation and Policy Implications
- Structural change matters: relationships estimated over long historical spans (1950-2012) can differ from those estimated over more recent periods (post 1980 or 1996Q2 onward).
- Policy reforms from early 1980s and post-1991 likely altered the interaction between public and private investment, turning public investment from a crowding-out force into a crowding-in force in more recent decades.
- Implication for policymakers: assessment of public investment effects on private-sector activity should account for structural breaks and frequency (annual vs. quarterly) in the data, and consider the role of reforms and institutional change.

---

## Content in this bundle

- **Appendix A**
  - [Appendix A (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2015/_wp15264.pdf.md){rel="alternate" type="text/markdown"}
  - [Appendix A (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2015/_wp15264.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/crowding-out-or-crowding-in-public-and-private-investment-in-india-43470_