Crowding in and Crowding out Hypothesis

Case Study of Libya (1962-2007)

Abstract

The study aims to explore the Crowding in and Crowding out Hypothesis in the Libya’s economy from 1962 to 2007 employing the VAR technique as the appropriate method to answering the question of whether public investment crowds out private investment or not. The results revealed that, though the coefficient of public investment is insignificant‚ the negative sign appears to suggest that public investment crowds out private investment, and that public  investment has no a favourable impact on private investment. This may raise some concern in terms of political intervention throughout the economy and the hostility which discouraged the private investment environment. The study suggests that private and public investment should be formulating complementary relationship‚ and that it may be advisable for the government to privatize firms in the economy so as to induce the inflow of private investment.