{
  "title": "Some Misconceptions about Public Investment Efficiency and Growth",
  "publication": "IMF Working Papers, December 23, 2015",
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  "summary": "We reconsider the macroeconomic implications of public investment efficiency, defined as the ratio between the actual increment to public capital and the amount spent.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Public investment efficiency is defined as the ratio between the actual increment to public capital and the amount spent.\n- In a simple and standard model, increases in public investment spending in inefficient countries do not have a lower impact on growth than in efficient countries.\n- This result is confirmed in a simple cross-country regression.\n- The result contrasts with Pritchett (2000) and recent policy analyses and follows from the standard assumption that the marginal product of public capital declines with the capital/output ratio.\n- Efficiency and scarcity of public capital are likely to be inversely related across countries.\n- Both efficiency and the rate of return need to be considered together when assessing the impact of increases in investment.\n- Changes in efficiency, such as “investing in investing” through structural reforms that increase efficiency, can have very high rates of return."
    },
    {
      "heading": "Key findings and evidence",
      "content": "- Increases in public investment spending in inefficient countries do not necessarily have a lower impact on growth than in efficient countries.\n- The counter-intuitive result derives directly from the assumption that the marginal product of public capital declines with the capital/output ratio.\n- Cross-country regression evidence presented in the paper confirms the theoretical result from the simple model.\n- Efficiency and scarcity of public capital are likely to be inversely related across countries.\n- Structural reforms that increase public investment efficiency can have direct and potentially powerful impacts on growth."
    },
    {
      "heading": "Implications for policy",
      "content": "- Blanket recommendations against increased public investment spending in inefficient countries need to be reconsidered.\n- Policymakers should assess both efficiency and the rate of return together when evaluating increases in public investment.\n- “Investing in investing” via structural reforms to raise efficiency can yield very high rates of return and directly boost growth.\n\n---\n\n Content in this bundle\n\n- wp15272\n  - wp15272 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp15272 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/some-misconceptions-about-public-investment-efficiency-and-growth-43490"
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    "Authors: Andrew Berg, Edward F Buffie, Catherine A Pattillo, Rafael A Portillo, Andrea F Presbitero, Luis-Felipe Zanna",
    "Published: December 23, 2015",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513589978.001",
    "Public investment efficiency is defined as the ratio between the actual increment to public capital and the amount spent.",
    "In a simple and standard model, increases in public investment spending in inefficient countries do not have a lower impact on growth than in efficient countries.",
    "This result is confirmed in a simple cross-country regression.",
    "The result contrasts with Pritchett (2000) and recent policy analyses and follows from the standard assumption that the marginal product of public capital declines with the capital/output ratio.",
    "Efficiency and scarcity of public capital are likely to be inversely related across countries.",
    "Both efficiency and the rate of return need to be considered together when assessing the impact of increases in investment.",
    "Changes in efficiency, such as “investing in investing” through structural reforms that increase efficiency, can have very high rates of return.",
    "Increases in public investment spending in inefficient countries do not necessarily have a lower impact on growth than in efficient countries.",
    "The counter-intuitive result derives directly from the assumption that the marginal product of public capital declines with the capital/output ratio.",
    "Cross-country regression evidence presented in the paper confirms the theoretical result from the simple model.",
    "Efficiency and scarcity of public capital are likely to be inversely related across countries.",
    "Structural reforms that increase public investment efficiency can have direct and potentially powerful impacts on growth.",
    "Blanket recommendations against increased public investment spending in inefficient countries need to be reconsidered.",
    "Policymakers should assess both efficiency and the rate of return together when evaluating increases in public investment.",
    "“Investing in investing” via structural reforms to raise efficiency can yield very high rates of return and directly boost growth.",
    "**_wp15272**"
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