Too much and too fast? Public investment scaling-up and absorptive capacity

A recent trend in several low-income developing countries has been a rapid scaling-up of public investment. It is argued that in the presence of limited absorptive capacity countries are not able – in terms of skills, institutions, and management – to translate additional public investment into sust...

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Bibliographic Details
Published in:Journal of development economics 2016-05, Vol.120, p.17-31
Main Author: Presbitero, Andrea F.
Format: Article
Language:English
Subjects:
Absorptive capacity
Developing countries
Donor fragmentation
Economic trends
Government spending
Infrastructure
Investment projects
LDCs
Low income groups
Public investment
Studies
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Summary:A recent trend in several low-income developing countries has been a rapid scaling-up of public investment. It is argued that in the presence of limited absorptive capacity countries are not able – in terms of skills, institutions, and management – to translate additional public investment into sustained output growth. We test for the presence of absorptive capacity constraints using a large dataset of World Bank investment projects, approved between 1970 and 2007 in 80 countries. Our results indicate that projects undertaken in periods of public investment scaling-up are less likely to be successful, although this effect is relatively small, especially in poor and capital scarce countries. We also verify that this effect is unrelated to large aid flows and donor fragmentation.
ISSN:0304-3878
1872-6089
DOI:10.1016/j.jdeveco.2015.12.005