applied them to a broad sample of EMDEs. Our paper helps fill this gap in the literature. Third, we introduce a new approach to measuring public investment shocks based on the identification of the episodes of large changes in cyclically adjusted real public investment specific to each country. In contrast to many public investment shock identification frameworks, our approach relies on annual-frequency data on public investment that is publicly available and is easy to replicate.<sup>6</sup> Finally, in addition to the estimation of public investment multipliers, we examine the effects of public investment on private investment, productivity, and potential output, which helps to cast light on the long-run supply-side transmission channels of public investment.

Our local projections estimates, using the identified public investment shocks, suggest that public investment can stimulate economic growth. In particular, the scaling up of public investment equivalent to 1 percent of GDP leads to an increase in output of 1.1 percent after five years in EMDEs, on average. We also find that the size of the public investment multiplier depends on government efficiency and fiscal space. In countries with higher public investment efficiency and ample fiscal space, an increase in public investment equivalent to 1 percent of GDP can increase output by up to 1.6 percent over the horizon of five years.<sup>7</sup> By contrast, in countries with low public investment efficiency and high public debt, the output effects of public investment are smaller and not statistically significant. In line with the literature, we also find that public investment multipliers tend to be greater during recessions and in capital-scarce economies.

Our analysis also suggests that public investment can have significant crowding-in effects on private investment. In EMDEs, the scaling up of public investment by 1 percent of GDP leads to an increase in private investment by up to 2.2 percent over the horizon of five years, on average. Finally, the paper finds that public investment can boost productivity and potential output. In the EMDE sample with available data, a 1 percent of GDP increase in public investment can increase labor productivity by 1.9 percent and total factor productivity by 0.8 percent over five years. Potential output in response to public investment shocks increases by up to 1.1 percent over the same period. Thus, our analysis provides empirical support for both short-run demand and longrun supply-side transmission channels of public investment.

The rest of the paper is structured as follows. Section 2 provides a synthesis of the literature on public investment effects. Section 3 presents the new framework for the identification of public investment shocks and the estimation methodology. Section 4 discusses the empirical results. Section 5 outlines policy implications and concludes.

> 6 See the comparative review of public investment shock identification strategies developed in the empirical literature in the methodology section.

> 7 State-dependent public investment multipliers use the dynamics of public debt as a share of GDP to proxy fiscal space and public investment and infrastructure efficiency indexes in the estimations of multipliers conditional on public investment efficiency. In more technical terms, public investment efficiency is defined as the fraction of public investment that translates into effective public capital stock (Pritchett 2000), which, in turn, depends on the strength of institutions, quality of the design and implementation of public investment projects, and effectiveness of procurement systems, among other factors (see also Kim et al. 2020).

3