Government Investment and Economic Growth in the Developing World (The Distinguishedl Lecture)

Mohsin S. Khan


There has been a sea change in the views of the economics
profession as well as economic policy-makers over the past decade or so
regarding the role of the government in the development process. Indeed,
it is now becoming conventional wisdom that government can no longer be
a dominant player in economic activities, but rather should restrict
itself to providing an “enabling” environment within which the private
sector can take the lead and flourish. More specifically, government
intervention in the economy has to be designed carefully so as to
support the private sector and not inhibit its development. The general
acceptance of this paradigm is evident in the steadily declining
importance of government activities in the economies of most of the
developing world. But does this new paradigm mean that government
investment has no role whatsoever in affecting growth in developing
countries? Reality is that public investment still represents a large
share of total investment in the majority of developing countries, and
the question is what role it plays in relation to private investment in
stimulating economic growth. The objective of this paper is to ascertain
empirically for a large group of developing countries the relative
importance of public and private investment in promoting and sustaining

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