PPP Investments and Real GDP growth

Table 2.1 shows the results of equation (1) for developing Asia. The coefficient of PPP investment (% of GDP) is found consistently positive and statistically significant across all variations of the baseline model (column 1). This is adjusted to check for possible nonlinearity of the relationship between PPPs and economic growth. To validate claims that using PPPs as a procurement modality rises during periods of severe fiscal constraint, we add an interaction term of PPP with a dummy variable that takes the value of 1 if, at year t, a country records a fiscal deficit of more than 10% of its GDP, indicating the severity of fiscal constraint; otherwise, it takes the value of 0. Column 2 shows no statistically significant results supporting that claim. In columns 3-5, we add institutional variables (corruption, rule of law, and government effectiveness) in the baseline model. The growth literature finds institutional quality as a relevant growth determinant. The addition of these institutional variables does not alter the significance of the coefficient before PPP investment (% of GDP).

We note, however, the potential upward bias of the coefficient before the PPP ratio because of the reverse causality, and this can be seen in the results in Table 2.2.2

Table 2.1: PPPs and Economic Growth in Developing Asia

GDP = gross domestic product, PPP = public-private partnership, WGI = Worldwide Governance Indicators.

Notes:

1.  Dependent variable is real per capita GDP growth.

2.  Standard errors are in parentheses.

*** p<0.01 ** p<0.05 * p<0.1

Source: Authors' estimates.