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This article discusses the view that public investment by itself can potentially be more harmful than helpful when poor countries to catch up. The IMF cites a few reasons for this:
1. Many countries waste money on useless investments. This is because, during times of big push, governments implement shelved but rejected plans – as it turns out, they are usually objected on the grounds that its impact in the long run would be meaningless. Nonetheless, the case of already having the project planned out and support from government officials who had earlier supported the i.e. makes the useless investment project easy and quick to implement.
2. The crowding-out effect can reduce private investments that could have been more beneficial.
3. Expanding on useful projects (e.g. rebuilding after way) only provides diminishing marginal returns on capitals.
4. The government saddles itself with high debt
For public investments to have a positive impact, governments must address the problems above, as well as amass information about which investments are the most useful ones.
For more on infrastructure and investment, read “Concrete Benefits” and “Bridges to Somewhere”