The impact of public investment to private investment case the key economics region in Vietnam

Abstract

The study focuses on analyzing the impact of public investment on private investment through the PMG pooled average method. In the long term, the results show that public investment has a crowding-in effect on total private investment in all key economic regions. More specifically, public investment creates a crowding-in effect on private investment in the corporate sector but does not create an effect on private investment in the household sector in the long term. At the same time, the study uses the non-causal analysis method proposed by Judios & Associates (2021) to analyze the impact of public investment in infrastructure on private investment in the business sector and households in key economic regions. However, in the short term, the main trend of the impact of public investment on private investment in the business sector is crowding-out. The reason is related to the problem of budget overspending in localities, the State participates in investing with the private sector in areas where the private sector can operate more effectively. Meanwhile, public investment has a crowding-in effect on private investment in the household sector in some localities. In addition, in core cities in key economic regions (except Ho Chi Minh City), public investment in general has not had a crowding-out effect on private investment in the business sector and thus leads to no effect/crowding-out effect on total private investment. In addition, in Ho Chi Minh City, public investment creates crowding-in effects for the business sector as well as the household sector in the short term due to its advantages in attracting international capital flows as well as the common payout ratio. The frequency in Ho Chi Minh City is lower than other cores of the key economic region, while the city is always the leading locality in state budget revenue.