• ISSN: 2301-3567 (Print), 2972-3981 (Online)
    • Abbreviated Title: J. Econ. Bus. Manag.
    • Frequency: Quarterly
    • DOI: 10.18178/JOEBM
    • Editor-in-Chief: Prof. Eunjin Hwang
    • Executive Editor: Ms. Fiona Chu
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HOME > Archive > 2015 > Volume 3 Number 6 (Jun. 2015) >
JOEBM 2015 Vol.3(6): 628-632 ISSN: 2301-3567
DOI: 10.7763/JOEBM.2015.V3.256

Testing the Relationship between Government Expenditure and Private Investment: The Case of Small Open Economies

Lina Sinevičienė

Abstract—This paper examines relationship between government expenditure and private investment in the case of small open economies. Governments could promote private investment increasing government expenditure, but increase of government expenditure can both crowd out and crowd in private investment. In order to assess relationship between government expenditure and private investment in this research, cross-correlations and Granger causality tests are applied using data of Bulgaria, Estonia, Latvia, Lithuania and Slovenia during 1996 – 2012. The research results show that impact of government expenditure increase on private investment is very weak, but negative impact of government expenditure increase on private investment dominates, except in the case of Bulgaria; whereas the impact of private investment increase on government expenditure is very different in analyzed countries.

Index Terms—Fiscal policy, government expenditure, private investment, small open economy.

Lina Sinevičienė is with the Faculty of Economics and Management, Kaunas University of Technology, K. Donelaičio str. 73, LT-44029, Kaunas, Lithuania (e-mail: lina.sineviciene@ktu.lt).

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Cite: Lina Sinevičienė, "Testing the Relationship between Government Expenditure and Private Investment: The Case of Small Open Economies," Journal of Economics, Business and Management vol. 3, no. 6, pp.628-632, 2015.

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