The impact of public investment on economic growth in Romania

According to Keynes, increasing public investment is one of the best solutions to economic recovery, since it causes strong effects upon the economic drive. However, according to recent studies, public investment expenditure generates less effect in the short term, due to the lags associated with the achievement of new project, but a larger long-term impact by stimulating potential GDP. In this paper we used a VAR model (ADL type) and estimated the intensity of public investment shocks on economic growth in Romania during 2000-2010 years. According to the results obtained a 1% increase in public investment lead to an increase in GDP of about 0.03%, and their impact disappears after nine quarters. Also, under long-term equilibrium of GDP, the multiplier of public investment is 1.14, result consistent with those obtained in the economic literature.