The effects of infrastructure and public investment on the elasticity of private investment: an empirical investigation for Brazil

Abstract

This study estimates the determinants of the elasticities of private investment and
total investment for the Brazilian economy for the period between 1960 and 2013. It uses
a Bayesian model averaging and weighted-average least-squares approach with a flexible
accelerator model of investment equation and Kalman filtering techniques. We conclude
that the aggregate infrastructure index (taken from the main component analysis) and
public investment crowd-in private investment. The results indicate that private investment
is constrained by the availability of bank credit. Furthermore, we find that infrastructure stock and public investment are two of the main determinants of the elasticities of private
investment. This demonstrates that public investment, mainly in infrastructure, is of great
importance in raising the sensitivity of private investment in the Brazilian economy.

JEL Classification: H54; O40; E20.