The Productivity of Public Capital in the Netherlands: A Regional Perspective

Abstract

This paper investigates on the impact of public capital on production in the Netherlands from a regional perspective. Based on a simple growth accounting exercise, the results indicate that investment in public capital contributed 17-21% to economic growth in the Netherlands between 1971 and 2000. In addition, the regres-sion estimates suggest that a one percentage point increase in public capital accumu-lation increased economic growth by 0.37 percentage points, but this effect could be as high as 0.82 percentage points in the periphery of the Netherlands. We find that total factor productivity was one of the most important determinants of regional economic growth. In the period 1971-2000, the contribution of total factor productivity growth to economic growth was between 39 and 52% based on the growth accounting method. In addition, regression analysis suggests that 27-65% of the variation in economic growth could be explained by total factor productivity growth. These results suggest that public capital accumulation did contribute to regional economic growth in the Netherlands, but that other factors, such as technological change and innovation, may be more important to achieve long-term economic growth.