FDI, GOVERNMENT BUDGET AND EFFICIENCY OF PUBLIC INFRASTRUCTURE CAPITAL

Vida Varahrami; Arghavan Novin Vajari

doi:10.20472/ES.2019.8.2.010

Authors

Vida Varahrami Shahid Beheshti University, Tehran, Iran Author
Arghavan Novin Vajari Tehran University, Iran Author

DOI:

https://doi.org/10.20472/ES.2019.8.2.010

Keywords:

Foreign direct investment, Infrastructures, Public consumption expenditure, Long run growth path, Dynamic optimization

Abstract

This paper surveys the relationship between the government budget, foreign direct investment (FDI), and the role of public capital efficiency in the infrastructure sector in attracting FDI. To achieve this goal, dynamic optimization methods are used to extract the growth path of public consumption expenditure within a neoclassical growth model framework. The results suggest that FDI has a direct and positive effect on the optimal growth rate of public consumption expenditure. In fact, if the government invests more in the infrastructure sector and becomes more efficient in attracting FDI, the optimal growth rate of public consumption will be higher in the long run compared to the short run. The equation for the growth rate of public consumption is derived and estimated using data for the period 1971–2014 in Iran.

Data:
Received: 3 Oct 2019
Revised: 22 Nov 2019
Accepted: 6 Dec 2019
Published: 20 Dec 2019