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Global | Private investment as the engine of economic growth and social welfare

Published on Wednesday, April 14, 2021 | Updated on Wednesday, April 14, 2021

Global | Private investment as the engine of economic growth and social welfare

In the long run, countries with higher private investment experience higher rates of growth. Therefore, good public policies that encourage permanent increases in private investment rates lead to increases in long-term economic growth and welfare.

Key points

  • Key points:
  • The empírical evidence for a large sample of countries at different stages of development since 1960 to the present shows that an increase of 10 percentage points in the ratio of private investment to GDP corresponds to an increase of 3.1 points in the long-term growth rate of per capita income, higher than the elasticity of 2.7 obtained between total investment and growth.
  • The empirical evidence points to private investment being typically allocated more efficiently than public investment, indicating that the best strategy is for public investment to be complementary and incentivize higher private investment.
  • We see this as evidence that the focus of policies oriented to providing fiscal stimulus to incentivize private investment, such as the European Fund NGEU as an adequate strategy to increase per capita income growth in the long term in European economies.

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