The Role Of Public Investment On Long Run Economic Growth: A Neoclassical Endogenous Growth Mode

Document Type : Research Paper

Authors

1 Assistant Professor, Faculty of Economics, University of Tehran, Iran

2 M.Sc. Student, Faculty of Economics, University of Tehran, Iran

Abstract

This paper extends endogenous growth models through augmenting it with government budget and oil revenues as well as the effect of public investment efficiency on long run growth of private and government consumption and import for an oil producing economy. Based on the extracted model, the optimal growth rate of government current expenditure (or consumption) has a positive relation with the efficiency use of public investment in oil production sector. With the increase of the share of oil revenues in the government budget, the optimal growth rate of government current expenditure increases. In addition, the effect of oil revenue injection to the government budget on the long run growth of public consumption depends on the efficiency use of public capitals in the oil production sector. In other words, if investment in oil sector is not sufficient and its capital return is very low, the economy can experience a low long run growth for government current expenditure.

JEL Classification: H54, H27, O4, O38

Keywords

Journal of Economic Research (Tahghighat- E- Eghtesadi)
Volume 48, Issue 3 - Serial Number 3
December 2014
Pages 87-106

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History

  • Receive Date: 04 February 2012
  • Revise Date: 18 December 2013
  • Accept Date: 01 October 2013

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