The Output Effects Of Public Investment

Our country is transforming from a planned economy to a market economy. And we have established a socialist market economic system preliminarily. Accompanied by the economic development, public investment is also growing. Different development times of change must be accompanied by different objective requirements of economy. This leads China’s public spending to change with the strength and scope. Our country’s public investment experiences the change from tight to loose, and from administrative intervention to market-based. On the one hand, public investment withdraws from the general competitive fields gradually, and it evolves to compensate for the lack of private investment direction gradually. On the other hand, the private sector enter some basic areas gradually. However, private investment is prone to volatile due to its unique long-term and blindness, which becomes the needs of the community which are difficult to control. The main macro-control policy approach is the cost of investment management. While it is difficult to regulate the private investment demand effectively, public investment has certain flexibility. By increasing infrastructure construction in many ways, public investment can boost domestic demand, and this can stimulate the economic growth. Therefore, public investment get more and more attention from scholars. In particular, the output effect of public investment, the rate of return, and so on.Since the1970s, more and more research discovered the importance of the contribution of public capital on economic growth. On the methods of research, some scholars used Cobb-Douglas production function, and they get empirical conclusions based on time series data. In addition, there is a more popular method, which contains the input and output in a cost minimization or profit maximization framework model; then, in some studies, the Cobb-Douglas production function is replaced by a more flexible functional form, for example, the logarithmic model: with the econometrics improving gradually, some scholars analyze the Granger relationship between the public capital and the economic growth.In this paper, we establish a dynamic model of the producers to maximize profits. We base on the data of China’s29provinces from the year1993to2009, and make an empirical analysis on the short-term and long-term effects of public capital investment in real output. Then we compare the output elasticity of private capital and public capital.Finally, based on this article’s study, we make four policy recommendations. First, making a rational allocation of public capital investment, and optimizing the investment layout; Second, optimizing the investment structure of the public capital; Third, improving the efficiency in the use of government public capital; Fourth, increasing private investment of private capital, and encouraging private capital to enter the state-owned monopoly areas; Fifth, guiding private capital into the public domain, expanding the range of private capital investment.