An Empirical Analysis of the Relationship Between Private Investment and Public Investment in Turkey: Bound Test Approach

Abstract

Private investment plays a vital role to promote sustainable economic growth and to reduce poverty in developing countries. The idea of using private sector investments intensively to boost growth in Turkey has started to emerge after 1980s. Despite a sizeable empirical literature, the impact of public investment in the developing countries gives inconsistent results on whether it complements or crowds out private investment. This paper makes use of Blejer and Khan Model (1984) for Turkey over the 1980-2009 periods estimating the effect of public investment on private sector. We employed time series analysis in this study. Our findings support the hypothesis that GDP growth stimulates private investment while public investment and private investment are complementary. The other finding of the study is that credit constraint is an important determinant of private investments in Turkey.