Public investment as a growth driver for a commodity-exporting economy: Sizing up the fiscal-monetary involvement

The study presents a solution to maximize public investment as a growth driver for commodity -exporting economies. The solution is to compensate for the low efficiency of public investment by drawing on internal and external factors within an active fiscal and monetary policy framework. For this, the paper introduces a quantitative model that implements a golden rule of public finance in a resource boom backed by a sovereign wealth fund under an active monetary policy stance. The modeling results show that mobilizing windfall resource revenues to finance increased public investment can limit a crowding -out effect through proper resource allocation and change the sectoral structure in favor of the final goods sector. As confirmed by the sensitivity analysis, the low efficiency of public investment can be partially offset by a less restrictive monetary policy response to fiscal dominance, but this leads to excessive volatility in financial indicators. However, if the public debt burden is an issue due to a more robust fiscal dominance regime, a higher tax rate on exported raw materials can be used to maintain sustainability. By developing a policy goals domain, the paper initiates a discussion that can direct policy recommendations toward a promising growth path by maximizing the public investment driver in the complex policy environment of fiscal -monetary interaction.