Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/301218 
Year of Publication: 
2024
Series/Report no.: 
Graduate Institute of International and Development Studies Working Paper No. HEIDWP12-2024
Publisher: 
Graduate Institute of International and Development Studies, Geneva
Abstract: 
This paper introduces a novel index to measure public investment quality, utilizing the World Bank's investment project performance data from 120 countries over the period 2000-2021. After detailing the construction of the index, the paper examines how public investment quality influences the relationship between the level of public investment and sovereign risk. We find that high levels of public investment are linked to lower sovereign risk in countries with high investment quality, and conversely, to higher sovereign risk in countries with low investment quality. This relationship is especially pronounced in sub-investment grade countries. We corroborate these results by showing that when public investment quality is high, scaling up public investment enhances fiscal sustainability by reducing the debt-to-GDP ratio in the long run: highquality public investment is self-financing. However, the opposite is true when public investment quality is low, where increased public investment results in a deterioration of fiscal fundamentals.
Subjects: 
Public investment
Public investment quality
Sovereign risk
Debt sustainability
JEL: 
E22
G24
H54
H63
Document Type: 
Working Paper

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