The Impact Of Public Investment On Private Investment In China

Fiscal policy, which treats public investment in reality as a main tool, has become one of the important means to stabilize the economy. However, in economic theory, the effectiveness of fiscal policy doesn't seem to be so conclusive. That's fundamentally because Keynesianism and Monetarism have different understandings on the impact of public investment over private investment. Thus it can be seen that the impact of public investment over private investment not only fundamentally determines the economic development, but also closely relates to the effectiveness of fiscal policy. Also, to China, who has decided to use active fiscal policy to cope with financial crisis, it's an urgent problem. Besides, in related researches, domestic and foreign, unanimous conclusion is still lacking and possible differences between economic sectors are ignored. That is the reason why I decided to choose the topic. In view of the economic reality, this paper studies the impact of public investment on private investment in our country, combining the overall analysis of the whole society with the decomposition analysis of economic sectors. From this, the research has certain function to rich the related study of our country and to provide some certain reference to our public investment policy.Firstly, this paper uses the modified neo-classical production function to analyze the internal relationship between public investment and private investment theoretically, and then re-organizes the generation mechanisms of crowding-out effect and crowding-in effect combined with the economic reality of our country. This enriches the traditional view in macroeconomics and reflects the specificity of our country.After that based on the neo-classical investment model and combined with the economic reality of our country, we introduce control variables and establishes six-variable VAR model. We look into the long-term and short term influence of public investment on private investment in the whole society of our country, using Johansen cointegration, Granger causality test and impulse response function. We also look into the degree of influence on private investment which comes from each variable in VAR model using variance decomposition. It's concluded that in China, public investment crowds in private investment, whether in the long-term or short-term. Therefore, active fiscal policy is effective in China. But, the long-term crowding-in effect is weaker than the short-term one, that shows the generation mechanisms of crowding-out effect exists in our country and weaken the result of crowding-in effect to some extent. The competition between public investment and private investment, the inefficiency of public investment, the imperfections in economy system of our country lead to other types of generation mechanisms of crowding-out effect, and traditional crowding-out effect doesn't play a significant role in our country.Furthermore, considering the lack of economic sectors data, we establish three-variable VAR model to look into the influence of public investment on private investment empirically in the fields of agriculture, industry, transportation and post, culture education and health welfare in our country. It's concluded that public investment crowds in private investment in agriculture and public investment crowds out private investment in industry, transportation and post, culture education and health welfare, which shows the influence of public investment on private investment is different between economic sectors. Therefore, different economic sectors should be treated differently when related policies are formulated.Finally, aiming to avoid the existing crowding-out effect in our country, this paper proposes policy recommendations on the basis of empirical results.