Abstract
Using data for Guyana that spans the period 1980 to 2017, this study assessed the impact of efficiency-adjusted public capital on the country’s overall economic growth and expenditures for private investment. This paper contributes to the literature in four ways. First, it constructed an efficiency-adjusted and unadjusted public capital stock series for Guyana, a less developed country within the Caribbean Community, using an amended perpetual inventory model. Second, with the aid of a modified Cobb–Douglas production function, the study identified a positive connection between the efficiency-adjusted public capital stock and growth in the economy. Third, the paper shows that the adoption of the country’s Economic Recovery Program helped to boost the impact of public capital formation on the economy’s output. Finally, the paper shows that public capital growth partially crowded-out private sector investment spending in the economy which can nevertheless expand with economic growth.
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Notes
In this exercise, the public capital stock refers to the underlying infrastructure that would support the provision of electric power, telecommunication, water supply, sanitation and sewerage, roads and highways, irrigation and drainage, ports and waterways, airports, education, and health in an economy.
See Sturm et al. (1998) for two other approaches that can be used to look at the connection between public investment and economic growth.
The interpolation and extrapolation techniques were used, in some instances, to develop the series for variables in the study to cover the period 1980 to 2017.
To estimate the private capital stock, q is equal to 1 in the perpetual inventory formula.
For more details on Guyana’s ERP, see Egoumé-Bossogo et al. (2003).
This framework has been used extensively in time series analysis to implement the bounds test for cointegration.
Critical values for the bounds test for cointegration were extracted from Narayan (2005).
In other recent studies, estimates of the output elasticity of public capital ranged in value from 0.13 to 0.26.
The calculated F-statistic for this test was 10.35 while the value for the upper bound was 4.59 at the 5% level of significance based on Narayan (2005).
The 95 percent confidence interval for the public capital regression coefficient is between -0.40 and -0.83. Given that zero is not within the interval, the evidence shows an inverse relationship between real private investment spending and real public capital expansion. In addition, this result indicates that 95% of the time the value of the true coefficient will be in the interval of -0.40 to -0.83.
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Modeste, N.C. Efficiency-adjusted Public Capital and Economic Growth in Guyana: A Cointegration Analysis. Atl Econ J 49, 187–199 (2021). https://doi.org/10.1007/s11293-021-09714-5
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DOI: https://doi.org/10.1007/s11293-021-09714-5
Keywords
- Guyana
- Efficiency-adjusted public capital
- Public investment expenditures
- Private investment expenditures
- Economic growth