Public Investments, Private Investments, and Structural Transformation

In low-income economies, fostering the development of the private sector is essential for reducing poverty. However, these economies often exhibit a scarcity of private enterprises and limited entrepreneurial activities. Despite the critical importance of private sector growth, there is limited understanding of effective measures to stimulate it. This dissertation investigates two potential catalysts for private sector growth and structural transformation: 1) public investments in infrastructure, specifically roads and electricity, and 2) private investments from external regions. In Chapter 1, using unique firm-level data, I explore the complementary effects of public investments in roads and electricity on firm creation, shedding light on how infrastructure investments can stimulate entrepreneurial activities. Chapter 2 develops a regional trade model and draws on evidence from China and India to analyze the impact of road improvements on business activities. The findings underscore the crucial role of labor mobility from the agricultural sector to the non-agricultural sector in shaping structural transformation. Lastly, Chapter 3 investigates the impact of private investments from foreign regions on local entrepreneurial activities, providing insights into how external investments can influence local business dynamics. By analyzing these measures, this dissertation contributes to our understanding of the mechanisms through which public and private investments can foster private sector growth and drive structural transformation in low-income economies.