Effects of Government Expenditure on Private Investment - China Empirical Evidence

The purpose of the study is to investigate the relation between government expenditure and private investment in China during 1978 to 2004. To this end, effects of three categories of government on private investment are examined within the cointegration and error-correction framework. The empirical results show that government investment expenditure crowds out private investment in the short-term whereas crowds in private investment in the long-run. The government consumption expenditure and government transfer expenditure crowd out private investment, but the effect is not significance.