Public Investment and Growth: the VECM Results for Ukraine

• Main Author: Shvets Serhii M.
• Format: Article
• Language: English
• Published: PH "INZHEK" 2018-06-01
• Series: Problemi Ekonomiki
• Subjects: economic growth; public investment; crowding-in effect; crowding-out effect; VECM
• Online Access: http://www.problecon.com/export_pdf/problems-of-economy-2018-2_0-pages-440_449.pdf

The article examines public investment impact on the economic growth in Ukraine applying VECM instruments. The aim of the study is to reexamine the influence of public investment on GDP dynamics in Ukraine in the short- and long-run using VAR modeling. There given characteristics of the crowding-in and crowding-out effects of public investment shock for developed and developing economies in the context of typical methods for studying the issue. The empirical review proves that public investment is a significant growth driver in the short-run. The VECM results verified a positive impact of public investment with maximum GDP growth 0.8 percentage points in Ukraine detected at the end of the first year after the shock. There determined a persistent crowding-in effect starting from the second quarter of the carried out impulse response scenario estimation and corresponds to an increase in the private investment to GDP ratio by 0.4 percentage points. Based on the results of modeling the internal public debt shock, there proved the presence of the crowding-out effect, which becomes more noticeable in the first quarter resulting in a sharp decline in the private investment to GDP ratio by -0.5 percentage points. The actual phase of the crowding-out effect lasts during the period of one year and a half. Summing up the empirical results, the governing authority of Ukraine has to take into account crowding-in and crowding-out effects while setting up a pro-investment fiscal policy in the short- and medium-run.