Public Capital and Growth Revisited: A Panel Data Assessment

Abstract

This paper analyses the links between growth and public capital accumulation for a panel of 28 developing countries over eleven years (1981-1991). We estimate a simultaneous equations model to explain the GDP, as well as public and private capital formation. Accumulating public, private and human capital enhances growth. Nevertheless, public capital formation has produced an indirect crowding-out effect, since the budget constraint was differentiated between public and private sectors. Our results suggest that the majority of the sample countries tended rather to diverge from the optimal allocation of capital in terms of growth between public and private sectors.