On The Inducing Effect Of The Public Investment To Private Investment

During the thirty years after the reform and opening up, the development of China's economy has gained achievements of world interest. The social investing and financing system have changed greatly. As the proportion of private investment in the whole social investment rises steadily, private economy has become the most active and the most dynamic part in the growth of economy. However, market economy is not everything. "Invisible hand" will lead to a series of problems, such as market failure and externality. Especially in economic recession, the problems like insufficient effective demand put forward by Keynes will come up. Thus, it needs the government decide to react through active and effective public investment in order to guide the development of private investment.Due to the global financial crisis triggered by the United States in the year of 2008, the real economy of our country has undertaken a heavy damage. In order to respond to the world financial crisis, China restarts the proactive financial policy. On November 10th,2008, the State Council announced the investment plan with total four trillion RMB in two years, including 280 billion RMB for supportability of the comfortable housing project,370 billion RMB for the rural people's livelihood and infrastructure, a total of 1800 billion RMB for railroads, highways, airports, and network of urban construction,40 billion RMB for Medical health and educational undertakings,350 billion RMB for ecological environment,160 billion RMB for the structure adjustment of self-directed innovation, and one trillion RMB for the investment on the reconstruction of severely earthquake afflicted area. In the background of the financial crisis, the investment of four trillion has played an important role in maintaining our country's economic growth and preserving social stability. However, if we just rely on the public investment, it is difficult to bring Multiplier Effect of economy into full play and economic growth has no capability. If the economic recession takes place, the development of private investment will be restricted. Therefore, in the background of the financial crisis, it is a question worthy of consideration whether there is transmission mechanism between public investment and private investment, and how public investment guides the development of private investment in order to start domestic demand and improve the efficiency of investment.In the present economic development framework, private investment plays an important role in the economic growth, creating employment opportunities and maintaining the social stability. Because the balanced relationship between public product supply and private product supply depends on the equilibrium state of public investment and private investment, it is of great significance to make fair and effect public investment in order to guide private investment.The contents of the study are divided into six parts, and specific arrangements of chapters are as follows.Chapter one is the introduction part. It introduces the research background, practical significance, the study structure and main contents, research methods and technology route, and the main innovation points and some shortcomings.Chapter two is the theoretical basis on the inductive effect of public to private investment. The contents include the insufficient effective demand put forward by Keynes, the theories on externality and public product. This chapter points out the reasons of the insufficient effective demand, analyzes the externality problem existing in private investment, and elaborates the reason for which the government makes public investment and the effects of public investment in the end of this chapter.Chapter three summarizes the development situation and existing problems of the public and private investment in China. The analysis of public investment includes four parts. Firstly, because the change of financial system reform has a direct effect on the scope and contents of the government public investment, it has a review of the process of the financial system reform in China. Secondly, it introduces the main scope of public investment. Thirdly, it analyzes the present state of public investment development in China through the total amount of public investment, the distribution of public investment in different regions, the education and scientific research expenditure of public investment, and so on. Fourthly, it gives a brief description on the problems of China's public investment on the present stage.The analysis on the development situation and existing problems of private investment includes three parts:The first part reviews the different development stages of private investment in macro level since the founding of China. The second part summarizes the birth and development of China's private investment. Through the use of the trend analysis with historical data, it analyzes the birth and development of China's private investment since the reform and opening up in 1987 in order to make a historical summing up. The third part analyzes the existing problems of China's private investment by the use of factor analysis on the imbalances of private investment regions, the irrational industrial structure and the un- ideal arrangement of investing and financing system in order to make an overall evaluation on the present situation of China's private investment and the necessity of the guidance of the government public investment.Chapter four tells about the theoretical analysis of inductive effects from public to private investment. It consists of four parts:the first one is the connotation of that inductive effort, which consists of impact and extrusion; the second one analyzes main factors; the third one summarizes experiences of developed country, through the horizontal comparison in financing system, control system, laws and regulations and financing channel; the last part summarizes main thought of public to private investment transmission mechanism, and builds main frame of this transmission mechanism which is mainly to transmit through capital construction expenditure, human capital and green policy, and what's more, the last part enlarges on the course of transmission.Chapter five puts positive analysis on inductive effects from our public to private investment. This part consists of two parts. One part reorganizes data processing methods about public and private investment in available documents, and raises logical data processing method; the author takes use of the monthly data from January, 2000 to December,2009, and chooses solid capital investment within budget as public investment, the balance between solid capital investment total and public investment as private investment; then the author checks up time series by building VAR model, and does research on impact of economy growth, public investment and short-period rate on private investment, then puts positive analysis on co integration test, causal relationship test, impulse response and variance decomposition, in order to study whether a long-time co integration relationship exists between public and private investment. The other part takes use of Cobb-Douglas production function to build models. The author adopts the research method of Alfred Greiner (1.996), and supposes degree of scarcity of our public investment, sets Cobb-Douglas production function as basis, to derivate the dynamic model including classical family, production department and the government, and to discuss about the existence of inductive effects of public to private capital, then to setup estimation model of inductive effects of public to private investment.The thesis holds that whether government public to private investment has impact or extrusion effect depends on whether government public investment improve the efficiency of private investment. By taking use of the annual data from 1981 to 2008, dividing stock of capital into public investment stock of capital and private one, and building the Cobb-Douglas production function model, considering urban employment number as labor number, taking the annual investment to scientific research as public research investment, and regarding public educational expenditure as human capital investment, the author does some parameter estimation to arrive at the extent of inductive effects from public to private investment, in order to make sure whether government public to private investment has impact or extrusion effect and how deep the effect goes.Chapter six makes a summary-up and puts forward policy suggestions. Considering the positive analysis above, the author suggests a new frame and assumption about Chinese government public to private investment transmission mechanism, and puts forward a new way and measure to improve inductive effects from public to private investment.The innovation idea lies in the two aspects as following:One aspect refers to using more strict positive analysis method. This thesis chooses HF monthly data instead of frequently-used LF annual data, which enlarges sample space and improve the model order of accuracy to some extent. On that basis, the thesis takes use of long-term annual data, and divides capital factor of the Cobb-Douglas production function into private and public capital according to endogenous economy growth model. Then the author uses E-G two-step approach to estimate relative relationship between public and private investment, and the relationship between them and economy growth. Using these two models to estimate the same thing at different time span can check with each other and improve the accuracy.The second aspect refers to putting forward public to private investment transmission mechanism, building the main frame of it, and enlarging on the process of transmission, which is never been raised in former research.