The Linkage between Public, Private Investment and Economic Growth—Evidence for the Developing ASEAN and Asian Countries

This study used a quantitative method to assess the impact of public investment on private investment and economic growth based on data from 18 developing countries over a 21-year period (1995-2015) by applying PVAR model combined with GMM. The findings show that all public investment and public-private partnership investments affect private investment as well as affect economic growth but the effects vary cyclically, by time period, and by group of countries. For the ASEAN developing countries, public investment crowds out private investment in short term and crowds in private investment in the medium and long term, but it crowds out public-private partnership investment. For the developing countries in Asia, public investment has a positive impact on economic growth with the inverted U-shaped pattern which stimulates growth in the short and medium term, but in the long-term effects of stimulation growth tend to decrease.

Public investment which affects strongly to economic growth is also reflected by aggregate supply and demand. Public investment directly impacts on aggregate demand as a government expenditure and aggregate supply as a production function (capital factor). Public investment has spillover effect and indirectly impacts to aggregate demand by stimulating private investment and to aggregate supply through attracting private investment. Public investment may facilitate and stimulate private investment through the provision of infrastructure and this can raise the productivity of capital and finally to increase economic growth. However, public investment may crowd out private investment. This because of additional public investment requires raising future tax, public debt and domestic interest rate and it may decrease economic growth.
Some related studies have addressed the effects of public investment on private investment and the crowding-in hypothesis with applying OLS and VAR (Vector Autoregressive model) analysis. For instance, the study on the effect of public investment on private investment in developing economies was done by Lutfi andRandall (2005, 2006) with applying several pooled specifications of a standard investment model and panel data for period (1980)(1981)(1982)(1983)(1984)(1985)(1986)(1987)(1988)(1989)(1990)(1991)(1992)(1993)(1994)(1995)(1996)(1997) has a result indicating that public investment crowds in private investment. Toshyya (2010) has a study investigating the effects of public investment on private investment based on Japanese empirical data. Estimating the error correction model, the author affirmed that the crowding-in effect of public investment on private investment. The study of Victoria (2014) is the impact of public capital spending on private investment in Nigeria showed that public investment is motivation of private investment growth. Christian and Han (2016) have a study to answer a question "Does public investment stimulate private investment in the euro area". In this study, the relationship between private and public investment by examining capital stocks as well as gross investment flows is investigated in a panel VAR framework, where the euro area member states constitute the cross section. The result indicated that the lack of public investment may have restricted private investment and thus GDP growth in the euro area. In addition to the above-mentioned studies that have resulted in the positive effects of public investment on private investment (public investment stimulates private investment); On the contrary, there are also some studies that show the negative effects of public investment (public investment crowds out private investment). Some studies such as Bruno and Joaní lio (1999), Altin and Agim (2012) find that the private investment is crowded out by public investment in short-term, but in the long term these two variables complement each other. Erden and Randall (2005) and Altin and Agim (2012) conclude that public investment has positive affect private investment in developing economies or in Eastern European Countries, whereas, public investment has a negative affect private investment in developed countries or in Western countries.
A comprehensive study of the effects of public investment on private investment and economic growth has also been carried out in different countries and groups of countries, and results are not quite the same. used endogenous growth model by Barro (1990) suggest that there is no clear evidence that government spending can increase GDP per capita GDP in G7. Ejaz and Musleh-ud (2006) have studied the impact of public investment on economic growth in Pakistan with using the Vector Autoregressive Approach (VAR). The VAR consists of four variables including public investment, private investment, public consumption and GDP with data from 1973 to 2004. The result of this study showed that economic growth is largely driven by private investment and that no strong inference can be made about the effects of public investment and public consumption on economic growth. The results also showed the presence of long run causality from public investment, private investment, and public consumption to economic growth. Syed et al. (2007) examined the casual connection between public investment and economic growth in the Three Little Dragons (Korea, Singapore, and Taiwan) using a variety of econometric techniques with Heterogeneous Dynamic Panel Data in the period . The authors also used four variables model that includes public investment, public consumption, private investment and growth rate of GDP. The results indicated that both public and private investment and public consumption have a long-term dynamic impact on economic growth and the pair-wise analysis showed bidirectional causality between public investment and economic growth in all the countries. Rohan (2007), investigated the relationship between public investment and growth in Jamaica, with using VECM. The Granger causality result suggested that public investment does not cause GDP; however, GDP causes public investment. The VECM showed that in the long-run domestic private investment, FDI, and the REER all have a positive statistically significant direct impact on the Published by SCHOLINK INC. Masaru (2012), have a study on the impact of public and private investment on economic growth in developing Asian Countries, The author analyzes the factors affecting economic growth and the interrelationship of public investment, FDI, and private domestic investment using a panel data covering the period 1984-2009. The study found that both public investment and private domestic investment positively affect economic growth. Therefore, any increasing in public investment more than 4.9%-8%, the public investment will reduce the positive effect of FDI on economic growth. Wolassa (2012) conducted pairwise Granger causality tests between infrastructure investment and economic growth in South Africa for the period 1960-2009 using bivariate Vector Autoregression (VAR) model with and without a structural break. The author found that there is a strong causality between infrastructure investment and GDP growth that run in both directions implying that infrastructure investment drives the long term economic growth in South Africa while improved growth feeds back into more public infrastructure investments. Sheikh (2013) investigated the effect of public and private investment on economic growth in Bangladesh, using the new neo-classical growth model of Cobb Douglas production function utilizing the Error Correction Model (ECM). The findings of the study concluded that there exist a short-run and long-run relationship between public and private investment and economic growth in Bangladesh.
Our research will inherit previous studies but has some differences including (1) to evaluate effect of public investment we use General government investment as well as General government capital stock.
Besides this we also add another variable such as Public-Private Partnership (PPP) investment; (2) the relationship is investigated in a panel VAR framework where every country states constitute the cross section. The large sample allows for consideration of the hypothesis that there are significant differences in the differential effects of public and private investment on economic growth for two developing country regions-ASEAN developing and Non-ASEAN developing countries. This means we examine the relative effects of public and private investment on economic growth across all developing Asian countries and across countries in different region groups.

Research Method, Model and Data
In this study, the authors use research variables to assess the interactive relationship between public investment and private investment and economic growth, along with other macro variables, according to studies done by Mohsin and Manmohan (1997) Unlike previous studies, they were using the VAR method as studied by William (1993), Edward and Kon (1994), Ejaz andMusleh-ud (2006), Pooloo (2009)  regions using some set of restrictions, treat the linkages across units, and can account for cross sectional heterogeneities (Canova & Cicarelli, 2013). According to Abrigo and Love (2015), estimation and inference of homogeneous panel VAR models in a Generalized Method of Moments (GMM) framework, by using standard Stata datasets.
To analyze the impact of public investment, we use four variables such as GDP, General government investment, private investment and Public-Private Partnership (PPP) investment. The public and private investment capital is calculated on average for one year. All data can be obtained from IMF source, which is calculated in US dollars. The variables used in this study are described in the following Table 1. Research model with PVAR method (a panel VAR framework) for assessing the impact of public investment on private investment and economic growth is a set of the following equations (with optimal expectation of lag and difference of order 1): Public-Private Partnership Investment (IPPP), the result shows that there is no significant difference between the two groups of these countries. The public-private partnership investment has a small size in both groups of countries (on average $ 3.76 billion for ASEAN developing countries compared to $ 4.12 billion for Non-ASEAN developing countries in Asia). In addition, the above analysis table describing the statistics of the variables shows that the standard deviation is greater than the mean value, so that most variables exhibit varying variance. In order to overcome this phenomenon, the author uses a combination of PVAR integrated with GMM according to the study done by Abrigo and Love (2015).
By using integrated GMM with PVAR, to ensure that data is stationary, the author applies fisher-type to test stationary of variables according to Abrigo and Love (2015). Test results are shown in Table 3.    Note. * Statistics those are significant at 1% level; ** Statistics those are significant at 5% level.; *** Statistics those are significant at 10% level; Ld is lag 1 of order 1of variables; d. is difference of order 1 of variables.
The PVAR results show that almost the variables are statistically significant for all groups of countries.
For ASEAN developing countries, public and private investment has the negative effect on economic growth in the short term (possibly it is due to poor capital absorption). This result contrasts with the result for non-ASEAN countries. However, in general, for all Asian developing countries, all public, private and public-private partnership investments, have a positive effect on economic growth in short-term.
To see causal effects in the short, medium and long term, we can see the figure of impulse response function.

Figure 1. Impulse Response Functions (IRF) for ASEAN Developing Countries
Source: Author's calculations from Stata14.

Figure 2. Impulse Response Functions (IRF) for Non-ASEAN Developing Countries
Source: Author's calculations from Stata14.

Figure 3. Impulse Response Functions (IRF) for Whole Sample of Asian Developing Countries
Source: Author's calculations from Stata14.
The results from the impulse response function (Figure 1, Figure 2, Figure 3,) showing the effect of public investment on private investment and economic growth by group regions developing countries in Asia can be summarized in the following table (Table 7).   Public investment has the effect of public-private partnership investmentin the short term but it crouds out PPP investment in the medium term and has no effect in the long term Public investment stimulates private investment in both the short run and the long run, but in the long term, the effects tend to decrease, the best effect in the medium term.

While public investment stimulates
Private-Public Partnership investment in the short term but it has no effect on PPP investment in the medium and in the long term Public investment stimulates private investment in the short and medium term but in the long run the effect is reduced.
Public investment only has the effect of stimulating PPP investment in the short term, but it has no effect in the medium-term and in the long-term

Conclusions and Policy Implications for Public Investment
The study used a quantitative method to assess the impact of public investment on private investment and economic growth based on data from two groups of developing countries over a 21-year period   investment and public-private partnership investments affect private investment as well as affect economic growth but the effects vary cyclically, by time period, and by group of countries.
For the ASEAN developing countries, public investment crowds in private investment in the medium and long term but it crowds out private investment in the short term, it also crowds out public-private partnership investment in the medium term.
The findings for non-ASEAN developing countries in Asia are better, public investment has the positive effect on economic growth with U-shaped pattern (which reduces growth in the short and medium term but has the growth effect in the long-term). It also stimulates private investment in both the short run and the long run.
When we consider two groups in the whole sample of Asian developing countries, most of the results are in the in the inverted U-shaped effect (which stimulates growth in the short and medium term, but in the long-term effects of growth stimulation tends to decrease) and some of the effects are similar to those of non-ASEAN developing countries in Asia.
This can be explained by the fact that, when we combine two groups of countries in one which has a different size of economy and investment, different economic growth rate, these characteristics also affects the impact level and the trend of impact of public investment. For example, there are some developing countries in Asia has a large size of economy and high growth rates such as China, India while there are some small economy in ASEAN developing countries like Cambodia and Laos.
The results of this study provide some policy implications for ASEAN developing countries, including Vietnam as following: First, ASEAN developing countries need to promote actively and effectively forms of PPP investment.
Government should create the legal framework and favorable conditions for this type of investment to develop; help to increase investment efficiency, to reduce pressure on state budget spending. However, it should be noted that public-private partnership investment must be transferred to the private sector, and the government is only creating a good legal corridor to attract private investors to invest jointly with government in infrastructure development.
Second, public investment policy needs to be open and transparent. The lack of information in public investment leads to inefficient investment attraction.