Public investment, infrastructure and private investment in Brazil: is there a crowding-in effect?

Abstract

Purpose – Our study aims to evaluate the impact of infrastructure and public investment on private investment in machinery and equipment in Brazil from 1947 to 2017. The contribution of our article to the existing literature lies in providing a more comprehensive understanding of the presence or absence of the crowding effect in the Brazilian economy by leveraging an extensive historical database. Our central argument posits that the recent decline in private capital accumulation over the last few decades can be attributed to shifts in economic policies – moving from a developmentalist orientation to nondevelopmental guidance since the early 1990s, which is reflected in the diminished levels of public investment and infrastructure since the 1980s. Design/methodology/approach – We conducted a series of econometric regressions utilizing the autoregressive distributed lag (ARDL) model as our chosen econometric methodology. Findings – Employing two different variables to measure public investment and infrastructure, our results – robust across various specifications – have substantiated the existence of a crowding-in effect in Brazil over the examined period. Thus, we have empirical evidence indicating that the state has influenced private capital accumulation in the Brazilian economy over the past decades. Originality/value – Our article contributes to the existing literature by offering a more comprehensive understanding of the crowding effect in the Brazilian economy, utilizing an extensive historical database.

Keywords

• Infrastructure
• Public investment
• Private investment
• Crowding-in effect