CROWDING OUT BETWEEN PUBLIC AND PRIVATE INVESTMENTS IN THE LIBYAN ECONOMY: AN ECONOMETRIC STUDY FOR THE PERIOD 1965 - 2005

Abstract

The relationship between public and private investment is still one of the most debatable issues in the economic literature. Keynesian s viewpoint asserts that public expenditure promotes private investments throughout its positive effect on the absorptive capacity of the economy, whereas neoclassical vision concentrates on what they called the crowding out effect by non-productive expenditure, which displaces an equal amount of private expenditure. In this context, the main purpose of this paper is to investigate the crowding out between public and private investments in the Libyan economy, and to achieve its goal, the paper has used econometric model based on the Co-integrating VAR’s [Johansen (1988); Ericsson, et al. (1998)] in order to examine this relationship in the presence of unit roots. Although the parameters were insignificant, the analysis suggests the presence of crowding out hypothesis between public investment and private investment, which may find its explanation in the uncertainties prevailed and inappropriate policies adopted by the Libyan governments during the period of the study, especially in the last three decades, what affected inversely the economic activity of the private sector