TY - JOUR AU - Shankar, Shiv AU - Trivedi, Pushpa PY - 2021/04/21 Y2 - 2024/03/29 TI - Government fiscal spending and crowd-out of private investment: An empirical evidence for India JF - Economic Journal of Emerging Markets JA - Econ. J. Emerg. Mark. VL - 13 IS - 1 SE - Articles DO - 10.20885/ejem.vol13.iss1.art8 UR - https://journal.uii.ac.id/JEP/article/view/18292 SP - 92-108 AB - <p><strong>Purpose </strong><strong>-</strong> The paper evaluates the crowding-in or crowding-out relationship between public and private investment in India, controlling fiscal and monetary variables.</p><p><strong>Methods</strong> <strong>-</strong><strong> </strong>In a flexible accelerator theoretical framework, the paper estimates long and short-run investment dynamics, employing Autoregressive Distributed Lag (ARDL) cointegration approach. We use a back series of national account statistics that incorporates enhanced coverage of the organized corporate sector.   </p><p><strong>Findings </strong><strong>-</strong> Our results suggest investment complementarity between the public and private sector at an aggregate and sectoral level over the period 1981-2019. Barring short-run crowding-out in construction and financial services at industry level, public investment stimulates private counterparts, both in the long and short-run. However, fiscal deficit, inflation expectation, and sovereign vulnerability influence private investment adversely. Moreover, the long-run crowding-out bearing of fiscal imbalance is quantitatively higher when the public sector invests in mining and manufacturing and insignificant with infrastructure.</p><p><strong>Implication </strong><strong>-</strong> Sizable infrastructure investment as a proportion of government finances would moderate the adverse impact of the deficit on private investment. Further, quality fiscal adjustments and containing inflation would enhance private investment activities.</p><p><strong>Originality </strong><strong>-</strong> Besides aggregate and sectoral levels, the study also evaluates the impact of industry-level public investment on private capital expenditure.  This paper also incorporates derived variables in the regression framework using statistical filters and the principal component technique.</p> ER -