Abstract:
This paper develops a model positing a nonlinear relationship between public investment
and growth. The model is then applied to a panel of African countries, using nonlinear
estimating procedures. The growth-maximizing level of public investment is estimated at
about 10% of GDP, based on System GMM estimation. The paper further runs
simulations, obtaining the constant optimal public investment share that maximizes the
sum of discounted consumption as between 8.1% and 9.6% of GDP. Compared with the
observed end-of-panel mean value of no more than 7.26%, these estimates suggest that
there has been significant public underinvestment in Africa.
