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Public Investment as a Catalyst: Crowding in Private Capital in Europe and Central Asia

Washington, DC: World Bank

🛡CC BY-NC 3.0 IGOPermitted use with attribution

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↗Will open at the source site: World Bank Open Knowledge Repository

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Shared byBhargav Banerjee›

Abstract

Public investment can be a powerful catalyst for private capital in Europe and Central Asia (ECA). Evidence shows that raising public investment by 1 percent of gross domestic product (GDP) lifts private investment by up to 2.2 percent over five years, provided there is adequate fiscal space and credible institutions. Where these are weak, the effect vanishes. Strengthening public investment management and reforming state-owned enterprises can markedly improve the effectiveness of public spending and its power to mobilize private capital. Governments have a growing toolkit of guarantees, blended finance, and public-private partnerships, but use it well below its potential. With the right reforms, public investment can complement rather than crowd out private capital, helping ECA countries deliver stronger growth, productivity, and job creation.

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