آیا سرمایه گذاری های عمومی عرصه سرمایه گذاری های خصوصی را تنگ می کند؟ مدارک جدید از کشور های فیجی

In this paper, we investigate whether government investment crowds out or crowds in private investment for Fiji over the period 1950–2001. We begin by searching endogenously for break points in the data series using the Zivot and Andrews [J. Business Economic Stat. 10 (1992) 251–270] test. Upon finding that 1975 is the statistically significant break date, we divide the sample into two. Using the error correction mechanism test, we find that government and private investments are cointegrated over the period 1950–1975, but not for the period 1976–2001. We also find that in the former period government investment has crowded in private investment, while in the latter period the relationship between government and private investments has been statistically weak.

From a policy point of view, the impacts of private investment and government investment on each other are important. The literature on development economics perceives public investment as crucial, for it is seen as a driving force for private investment, which in turn drives economic growth. Ashauer (1987) argues on neoclassical grounds that an expansion of public investment should induce an increase in the rate of return to private capital, stimulating private investment expenditure. In a similar light, provision of capital goods such as infrastructure has the potential of raising the marginal productivity of capital and, hence, exerting a complementary effect on private investment. If this is true then one can claim that public investment is complementary to private investment. This is tantamount to claiming that public investment exerts a ‘crowding in’ effect on private investment. However, if public investment exerts a negative impact on private investment then the former is seen as a substitute good. This can result if higher public investment exceeds capital accumulation above the level required by private sector agents on an ex ante basis as individuals seek to re-establish an optimal intertemporal allocation of resources (Ashauer, 1989). Interpreted differently, this is testimony to the ‘crowding out’ of private investment by public investment. The central aim of this paper is to investigate whether public investment ‘crowds out’ or ‘crowds in’ private investment in Fiji. This has not only become an important question in the literature on development economics but it has also generated an immense level of interest among policy-makers in Fiji, particularly in view of the inability of the Fijian economy to generate the required level of private investment to simulate growth. Over the last decade, Fiji’s private investment has been mediocre – averaging a mere 3.5% of gross domestic product (GDP) per annum. This has become a cause for alarm for Fijian policy-makers given the prognosis of the government that, for Fiji to achieve its targeted growth rate of 5% per annum, it needs to generate private investments of 25% of GDP per annum (Kubuabola, 2002:18). Noticeably, public investment in Fiji has grown appreciably over the last couple of decades. For instance, over the period 1976–2001, public investment grew at a rate of 3% per annum. These trends warrant an investigation into whether public investment is ‘crowding out’ or ‘crowding in’ private investment in Fiji. We believe that the answer to this question has the potential to influence policy-making. In investigating the private investment and government investment nexus for Fiji, this study differs from existing studies in four novel ways. First, we investigate the nexus for a small developing economy for the first time; hence, the results from this study are likely to add to our understanding of the ‘crowding out’ and ‘crowding in’ nature of government investment. Second, we use the error correction mechanism test of Banerjee, Dolado, and Mestre (1998) extended by Pesaran, Shin, and Smith (2001) not used previously in this literature. The test has been shown to function efficiently in small sample sizes such as the one in the present study. Third, we are concerned about the robustness of our long-run results in relation to the impact of government investment on private investment, given the importance for policy-making. In this light, we depart from the existing literature in that, to ascertain robustness, we use three different estimators shown to produce robust results in small sample sizes such as in the present study. We use the autoregressive distributed lag (ARDL) approach, the dynamic ordinary least squares (DOLS) approach and the fully modified (PHFM) ordinary least squares approach. Fourth, our study can be perceived as a methodological advance over existing studies in the field. We use the Zivot and Andrews (1992) method for unit root test with one structural break. Here, the break date is established endogenously. Moreover, whilst asymptotic critical values are available for this test, Zivot and Andrews (1992) warn that with small sample sizes the distribution of the test statistic can deviate substantially from this asymptotic distribution. To circumvent this problem, we generate our own critical values specific to our sample size based on Monte Carlo simulations using GAUSS. We believe that this not only adds concreteness to our results but it also adds robustness to our results which will bear on the policy implications emerging from this study. The balance of the paper is organised as follows. In the next section, we describe the model. In Section 3, we give a brief account of the methodology. Section 4 contains the empirical results, while Section 5 concludes with policy implications.

The central aim of this paper was to investigate whether government investment ‘crowded out’ or ‘crowded in’ private investment in Fiji. We find that, while private and government investments over the period 1950–1975 are cointegrated and government investment had a ‘crowding in’ effect on private investment, there is no cointegration relationship over the period 1976–2001. The latter result is consonant with the trend in private and government investments in the post 1976 period. For instance, during the period 1976–2001 real private investment has fallen from around 11% of GDP in 1976 to 3.4% of GDP in 2001, while in the corresponding period real government investment increased from 18% of GDP to 22% of GDP. Three import policy implications emerge from this paper. First, it is clear that in the period 1950–1975 – a period of political stability in Fiji – government investment has been complementary to private investment. However, over the period 1976–2001 – a period of great political instability accentuated by 17 changes in government – government investment has not been complementary to private investment. This suggests that the bulk of government investment in this period has gone towards unproductive or consumption investment rather than capital investment. This was recognised by the Fijian Minister of Finance in his 2003 National Budget Address: “Every year the cost of funding the operations of the public service increases, which leaves less for investing in roads, water and sewage, construction of new schools, health centres and so on” (Kubuabola, 2002: 28). It should be noted that political instability in Fiji has been one of the key reasons for the increase in government investment on consumption goods at the expense of capital goods. On this basis, it is important that Fiji maintains political stability. The fact that political instability is an upshot of human behaviour means that political disturbances can be controlled. This will ensure that government investment is channelled into capital investment, which on the empirical evidence for the period 1950–1975, is likely to complement private investment. Second, for neighbouring Pacific Island countries – Solomon Islands, Vanuatu and Papua New Guinea – sharing similar socio-economic characteristics to Fiji including political instability and weak private investment and economic growth, it is clear that political stability is a precondition for attracting private investment and simulating growth. In the absence of political stability, most resources are directed towards consumption activities such as military and police budgets in order to restore and maintain law and order; hence, if empirical evidence from Fiji can be generalised then government investment is likely to ‘crowd out’ private investment in these countries. Third, on the methodological front we have shown that it is imperative to account for structural breaks in data series, for it allows one to extract more detailed information than would otherwise be possible, which enables one to deduce appropriate policy directions.