Public Investment and Economic Growth in a Three Sector Open Economy With an Infrastructure Constraint

Abstract

This paper presents a structuralist economic model of growth and distribution in an open, three sector economy with an infrastructure constraint and deficient aggregate demand where the government sector captures the rents (in the Ricardian sense) originated in an enclave sector such as an oil/gas or mineral sector. The model seeks to explore the ways by which these constraints determine the growth rate and the distribution of income. The model shows that once the fiscal constraint is overcome - which translates itself into an increase in public investment in infrastructure - and the sectoral supply bottlenecks gradually eased, simultaneous increases in employment, real wages and growth become attainable.