Optimal public investment, growth, and consumption: Fresh evidence from African countries

This paper develops a model positing a nonlinear relationship between public investment and growth. The model is then applied to a panel of African countries using nonlinear estimating procedures. The growth-maximizing level of public investment is estimated at about 10 percent of GDP based on System GMM estimation. The paper further runs simulations, obtaining the constant optimal public investment share that maximizes the sum of discounted consumption as between 81 percent and 96 percent of GDP. Compared with the observed end-of-panel mean value of no more than 726 percent, these estimates suggest that there has been significant public under-investment in Africa.