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Crowding Out Private Investment in Bolivia: Evidence for the 1988–2010 Period

Published online by Cambridge University Press:  05 September 2022

Antonio N. Bojanic
Antonio N. Bojanic*
Affiliation:
Tulane University
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Abstract

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This article analyzes whether public investment has crowded out private investment in Bolivia during the 1988–2010 period. The evidence demonstrates that this is generally the case, as public investment has been shown to consistently run counterclockwise to private investment. Interestingly, the quality of the institutional setting and the openness of the economy to trade with other nations do not seem to matter to the relation between public investment and private investment. The findings suggest, however, that increases in domestic credit to the private sector lessen the crowding-out effect, which calls attention to the importance of a stable and healthy financial system as a way to encourage private investment.

Resumen

Resumen

El artículo analiza si la inversión pública ha desplazado a la inversión privada en Bolivia durante el período 1988–2010. La evidencia demuestra que éste es generalmente el caso, ya que, de manera consistente durante todo el período analizado, la inversión pública avanza de manera contra-cíclica a la inversión privada. Curiosamente, la calidad del marco institucional y la apertura de la economía al comercio con otros países parecen no afectar la relación entre inversión pública y privada. Los resultados sugieren, sin embargo, que incrementos en el crédito doméstico al sector privado disminuyen el desplazamiento generado por la inversión pública, resaltando la importancia de mantener un sistema financiero estable y sólido como instrumento de promoción de la inversión privada en el país.

Type
Research Report
Information
Latin American Research Review , Volume 50 , Issue 3 , 2015 , pp. 225 - 244
Copyright
Copyright © 2015 by the Latin American Studies Association

Footnotes

I am grateful to three anonymous LARR reviewers for helpful comments and suggestions. I am solely responsible for any errors that remain.

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