Economic Growth and Public Investment Optimality


Youssef Oukhallou


This book investigates the relation between economic growth and public investment expenditures. It examines the level and means to improve the macroeconomic effectiveness of government investment spending and explores the concept of optimality under the constraint of debt sustainability. Additionally, this research analyzes the legislative and institutional factors that could slow down the effectiveness of investment expenditures, and provides hints on how the reduction of corruption could help fiscal policy converge toward optimality. The first chapter sheds light on economic growth in the literature as a core variable of the economic activity, its determinants and the role of investment, particularly public investment, as a potential contributor. The second chapter focuses on public investment’s macroeconomic effectiveness, as the first leg of optimality. The emphasis is laid on the examination of the macro-financial framework of Morocco as an example of developing countries, followed by a larger benchmark panel data model. Afterwards, I estimate public investment expenditures’ impact on GDP, along with other variables such as GFCF and public consumption. The third chapter introduces debt sustainability as the second component of public investment optimality. The twofold concept of optimality is then encompassed in an experimental small scale macroeconomic model for public investment policy analysis, on which a series of policy shocks is driven in order to further discuss different hypotheses. Throughout this book, I reveal that the macroeconomic impact of public investment expenditures is below the effectiveness levelhence could not logically be optimal even if public debt is found to be sustainable. Subsequently, a number of effectiveness-oriented institutional recommendations are prescribed. The policy simulation also suggests that an increase in public investment spending that is not totally or predominantly matched with a rise in public revenues has a larger and longer negative impact on public debt than a positive one on GDP growth. On overall, public investment’s optimality in the realistic framework of a developing economy seems to be strictly conditioned by a cumulative series of positive variations combined with the improvement of profitability-based selectivity of investment projects, under the constraint of a debt ratio that should not exceed 60 percent.




  1. Public investment and output growth in the literature



Theoretical and conceptual background

The Classical and Keynesian debate

The Classical framework

The Keynesian perspective

The concept of economic growth in theory

Main contributions of the Growth Theory

Further determinants of economic growth


A review of the empirical studies

The case of developed economies

The case of developing countries




  1. Analysis of the Moroccan macro-financial framework



Characteristics of the Moroccan economy

A retrospective analysis of GDP’s Dynamics

Public Investment in Morocco: overview and state of affairs

Public companies’ investment

Local Councils’ investment

Government budget investment


A comparative econometrical analysis

Building the panel data model

Estimation method and statistical tests

Empirical results


The macroeconomic impact of public investment in Morocco

Data and econometrical approach

Empirical results

Recommendations and hypotheses



  1. Toward an optimal public investment policy: A small scale model analysis



Debt sustainability and public investment optimality

Stylized facts of government debt

The concept of debt sustainability

Debt sustainability as a condition for optimality


The small scale model

Model specification and variables choice

The aggregate demand equation

The price-setting equation

The monetary policy rule

The fiscal reaction function and debt constraint

Building the model


Scenarios Simulation and public investment analysis

The economy’s reaction to a public investment shock

The economy’s reaction to a public consumption shock

The economy’s reaction to a variation in public revenues

The economy’s reaction to a variation in public debt





About Author

Youssef Oukhallou is an experienced economist specialized in public finance and development economics. He has a PhD in financial macroeconomics from the Mohammed V University of Rabat (Morocco) and an MSc in economic development and policy analysis from the University of Nottingham (United Kingdom). With a combined experience of over a decade in government procurement, economic journalism and political campaign management, Dr Oukhallou offers in his publications a unique perspective that combines the analysis of legal and institutional underpinnings of economic phenomena with statistic-based inference.



Date of Publication

July 30, 2019

File Size: 2805 KB
Length: xi + 225 pages

Other KSP Books

Other KSP Books