Economic Stimulus: Government Investments or Private Investments?

Investments have been an important vehicle driving the growth of the Chinese economy. This paper herein intends to fully investigate the relationship between government investments, private investments and GDP growth, through such measurement approaches as cointegration test, Granger causality test, VEC model, IRF (Impulse Response Function) and variance decomposition. The results indicate government investments and private investments play a varied role in pushing economic growth: from a short-term perspective, government investments play a limited role while private investments play a greater role in comparison; while from a long-term angle, government investments perform better than private investments in driving economic stability and growth. As such, private investments shall be fully mobilized to stimulate short-term economic growth, whereas the government shall make long-term, planned investments to ensure sustainable economic health and growth.