IMPACT OF GOVERNMENT INVESTMENT ON ECONOMIC GROWTH : A STUDY ON SELECTED ASIAN ECONOMIES

Abstract

This study seeks to remedy the neglect of the current literature with regards to the effect of individual components of government investment on economic growth. More importantly, it hopes to deepen the understanding of the role various components of government capital spending played in influencing the different sectoral outputs of an economy. This would then allow policy makers to distinguish between the more 'productive' investments and hence to channel more funds into these areas. Four rapid growing Asian economies, namely, Malaysia, Singapore, Korea and Hong Kong, are examined. The 3SLS technique has been utilized to obtain the different estimates of each country. The major findings, which are shown to be quite robust, are that government investment on 'core' infrastructure project, such as, highways, airports and public utilities, and social infrastructure projects like public housing, had exerted the greatest influence on the different sectoral outputs of the four economies. In addition, government spending on agriculture and, commerce and industry were also found to have significant impact on Malaysia's sectoral outputs, while government outlays on transport equipment was found to display a positive relationship with outputs of manufacturing and construction in Hong Kong.