Crowding-Out Effect Of Public Investment On Private Investment

For a long time,the public investments that are mainly driven by the government such as infrastructure investments,education investments,and R&D investments,are regarded as the basis of the growing economy.Consecutive years since reform and opening,the economy has been enjoyed an average of 9.6% of high-speed growth.In addition to the factors such as exports and urbanization,the rapid economic growth is mainly investment-laded,especially the government-led public investment plays a big role.With the increase of public capital stock,the complementary of public investments and private investments gradually decays,crowding out effect is getting more attentions.There are numerous research literature about crowding out effects from abroad,but their theoretical frameworks cannot fully apply to China.In addition,domestic researches in this field are rare.In view of this,this paper is using the theoretical framework and empirical study method to probe the crowding out effect.This paper is based on four major theories: the theory of public goods,the Keynesian theory of public investment,the theory of optimal capital stock under the new classical investment theory,and Richard Abel Musgrave's public capital formation theory.It systematically names six major factors,which could be divided into general and special categories,influencing the crowding out effect.The general factors are financing way,investment scale,and investment structure.While the special factors are the level of economic development,fiscal system,and the economic cycle.It established a dynamic model based on the new classical economic theory,which is suitable for analysis of crowding out effects of public investments for developing countries.It also reviewed the history of China's changes of the investment system since 1949,and analyzed public investment and private investment of China from the perspective of scale and structure.Based on the comparison of two large-scale public investments in 1998 and 2008,the paper suggests that the crowding out effect of public investment in 2008 stimulus was stronger than that in 1998.The main conclusions are: First,the crowding out effect is influenced by six factors significantly.In the aspect of financing way,the same size and structure of public investment that choose different financing ways has different crowding out effect for private investment.In terms of investment scale,at the same level of economic development,the scale of public investment and crowding out effect show u-shaped relationship,which has the optimal scale of public capital.In terms of the investment structure,holding the investment scale constant,the stronger the complementary of public investment and private investment,the smaller the crowding out effect.In terms of economic development level,the primary stage of economic development has small crowding out effect is;the intermediate stage of economic development and public investment has more obvious crowding out effect;advanced stage of economic development,the public capital and private capital at a higher level reflect supplementation,crowding out fell.In terms of financial system,the degree of fiscal decentralization and public investment had inverted u-shaped relationship.Additionally,crowding out effect on private investment has a larger contact with the economic cycle.Second,the crowding out effect of public investment in our country is increasing with the development of economic and institutional change.Two large-scale stimulations in 1998 and 2008 by public investment suggested that the crowding out effect is greater in 2008.The reason is that economic development level that represented by public capital stock changed dramatically,the public investment scale & structure and the nongovernmental economy,and the needs of economic development are not equal and fair.Public investment "offside","absence",and "normalize" credit structure are obvious,and the defect of public investment financing way of crowding out effects are amplified by fiscal and financial system.Third,the developed countries that have mature market have strict limits on public investment fields,the governments at all levels of investment in public powers have clearly defined,the decision-makings are scientific and democratic,and the construction of public investment way is more diverse.In terms of the status quo of our country,we should further define public investment function,control the scale of public investment,and optimize the structure of public investment.More importantly,we must deepen and make clear the governance and expenditure responsibility at all levels as the core of financial system's reform,strengthen the budget constraint,improve the decision-making mechanism of public investment,rich public investment financing channels,and to realize the coordinated development of public investment and private investment.