## Is the Public Investment Multiplier Higher in Developing Countries? An Empirical Exploration

_IMF Working Papers, December 20, 2019_

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## Bibliographic details
- Authors: Alejandro Izquierdo, Ruy Lama, Juan Pablo Medina, Jorge Puig, Daniel Riera-Crichton, Carlos A. Végh Gramont, Guillermo Javier Vuletin
- Published: December 20, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513521114.001

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### Summary findings
- Over the last decade, empirical studies analyzing macroeconomic conditions that may affect the size of government spending multipliers have flourished; however, little is known about public investment multipliers.
- The paper tests the theoretical implication that public investment multipliers should be higher (lower) the lower (higher) is the initial stock of public capital.
- Key empirical finding: countries with a low initial stock of public capital (as a proportion of GDP) have significantly higher public investment multipliers than countries with a high initial stock of public capital.
- The key finding is robust across samples and identification methods.

### Samples and identification methods
- Samples analyzed:
  - European countries
  - U.S. states
  - Argentine provinces
- Identification methods used:
  - Blanchard-Perotti
  - Forecast errors
  - Instrumental variables

### Policy implications and interpretation
- The results suggest that public investment in developing countries would carry high returns.
- Implicit policy recommendation: prioritizing public investment where the initial stock of public capital (as a proportion of GDP) is low could yield larger output multipliers.

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_Source: https://www.imf.org/en/publications/wp/issues/2019/12/20/is-the-public-investment-multiplier-higher-in-developing-countries-an-empirical-exploration-48836_