Capital Ownership and its Impact on International Trade and Economic Growth: An Empirical Analysis

The trend toward privatization has been an issue of a long debate. Some reflecting ideological overtones, some having a more pragmatic concern that the private sector can deliver goods and services more efficiently and effectively. From the standpoint of reducing poverty and promoting economic growth, which are common goals of developing countries, the last two decades saw a reversal of the previous two decades during which the public sector was seen as playing a dominant role. This paper addresses the issue again by empirically analyzing and comparing the distinctive effects of privately and publicly owned capital on international trade and economic growth. Based on a modified version of the neo-classical one-sector aggregate production technology, we investigate the intertemporal interactions among the real output growth rate, private investment, public investment, international trade and labor growth. The results of applying our methodology to data from the United Arab Emirates suggest that private capital performs better than public capital in promoting economic growth and international trade. JEL Classification: