Relation Between Social Overhead and Human Capital in a Regional Economy

Abstract

With a rapid decrease in the population of Japan, drastic changes in the allocation of scarce public resources appear to be needed to sustain regional economic growth. According to a series of new economic growth studies, the effects of improvements in labor productivity and R&D activities on growth has been examined by estimating the production function for which inputs are either knowledge stocks or human capital, while the contributions of physical stocks on growth have been less emphasized. The relative importance and interdependence of these capitals on productivity are not positively inspected enough. In this study, we examined the relationship of social overhead capital, the accumulation of public physical investment, and human capital, public expenditures to improve labor productivity, and their effects on productivity. We especially focused on the differences in regional attributes, because there are gaps in the impacts of the decline in population on regional growth. Estimates of the Cobb-Douglas type production function with aggregated data from Metropolitan Employment show that both the social overhead capital and the human capital have significant effects on regional productivity. The relationship between production factors was also investigated by estimating the cross parameters of the Trans-log type production function. Human capital substitutes the effects of private capital on the output, whereas the quantitative labor force compliments it. The social overhead capital compliments the efficiency of private capital and human capital but substitutes the quantitative labor force.JFL Classification: R11, R12, R30, O40