FDI, GOVERNMENT BUDGET AND EFFICIENCY OF PUBLIC INFRASTRUCTURE CAPITAL

Abstract

This paper surveys relation between government budget, foreign direct investment (FDI) and public capital efficiency role in the infrastructure sector for attracting FDI. To achieve this goal, dynamic optimization methods are used for extracting the growth path of public consumption expenditure of government within a neoclassical growth model framework. The results suggest that FDI has a direct and positive effect on the optimal growth rate of public consumption expenditure. In fact, if the government invests more in the infrastructure sector and it is more efficient to attract FDI, the optimal growth rate of public consumption will be higher in long run respect to short run. The equation for the growth rate of public consumption is derived and estimated on the basis of data during the period 1971 - 2014 in Iran.