Public investment in infrastructure increases economic growth and its degree of inclusiveness through several channels. First, in the short term, the fiscal multiplier boosts aggregate demand during the implementation stage of investment projects. Second, public investment increases long-run growth by expanding the productive capacity, facilitating human capital accumulation, enhancing productivity gains and returns on private investment.
Experts of the International Monetary Fund that 1% of GDP increase in public investment in advanced economies and emerging markets could have the potential to push GDP up by 2.7%, private investment by 10%, and to create between 20 to 33 million jobs. At the same time, if the construction of infrastructure facilities is performed by local enterprises and using local labor, the fiscal multiplier of public investment is higher and longer. This provides a wide penetration of the positive effects of public investment.
Increasing public investment and improving its structure is quite important for Ukraine. General government expenditure on acquisition of fixed capital (including capital construction and capital repairs) in Ukraine constituted 2.2% of GDP in 2019 and 2.0% of GDP in 2020. Among emerging market countries, Ukrainian figures proved to be very low, lagging more than by 1.5 times the average for this country group (3.4% of GDP). In terms of individual countries, according to the IMF, investments in non-financial assets of the general government sector in 2019 amounted to 5.5% of GDP in Albania, 14% in Azerbaijan, 6.9% in Georgia, 5.5% in Kyrgyzstan, 5 % in Serbia, 4.6% of GDP in Uganda and Uzbekistan.
Read more in the study of Doctor of Economics Tetiana Bogdan “Transforming Public Finances: Global Processes and Challenges for Ukraine”.