Do High and Volatile Levels of Public Investment Suggest Misconduct? The Role of Institutional Quality
This paper investigates the impact of institutional quality on public investment levels over the period 1984-2008. Moreover, it studies how the volatility of public investment and the quality of infrastructure are affected by institutional quality,...
| Main Authors: | , |
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| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110929092625 http://hdl.handle.net/10986/3584 |
| Summary: | This paper investigates the impact of
institutional quality on public investment levels over the
period 1984-2008. Moreover, it studies how the volatility of
public investment and the quality of infrastructure are
affected by institutional quality, and explores the
contribution of other critical factors. The findings suggest
an inverse relationship between public investment levels and
institutional quality, supporting the idea that governments
use public investment as a vehicle for rent-seeking or to
compensate for the fall in private investment due to the
poor business environment. In addition, aid flows, revenues
and abundance of natural resources contribute positively to
the level of capital spending. The author also finds that
high volatility of public investment is associated with a
lower quality of governance. An increase in revenues is
associated with a reduction in the volatility of capital
spending, suggesting that proper macroeconomic management
smoothes the investment cycle. Finally, the paper provides
some tentative evidence of a positive relationship between
institutional quality and the quality of infrastructure. |
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