Public Capital Stock Research Articles

Public capital and institutions' quality in the Italian regions

AbstractThis paper investigates the role played by public capital on the production level of Italian regions by specifically accounting for the quality of institutions. Our analysis, carried out over the period 2000–2019, benefits from a rich data set on public expenditures. This allows us to build the regional public capital stock by distinguishing among public institutions in charge of the investments and sectors of intervention. While controlling for several contextual variables (human capital, technological capital, and population density), the main results show that public capital has a positive and significant effect on production. Most interestingly, looking at Mezzogiorno's regions, public capital carried out by local institutions turns out to have a lower impact than in the rest of the Italian regions. On the other hand, central bodies in the South exhibit an impact higher than the average. Moreover, institutions' quality exhibits a positive and significant effect on regional economic performance. These results cast serious doubts about the local Southern administrations' capacity to effectively manage the National Recovery and Resilience Plan's enormous resources and the new European Union cohesion framework 2021–2027. Our results are also relevant for other European regions that, featuring structural traits similar to Southern Italian regions, are expected to face the same difficulties in managing public funding.

The Asymmetric Impact of Energy’s Paradigm Transition on Environmental Degradation: a Macroeconomic Evidence from Latin American and the Caribbean Countries

The main objective of this study is to identify the impact of the energy paradigm transition on the environmental degradation of eighteen Latin American and Caribbean (LAC) countries. To this end, a panel non-linear autoregressive distributed lag (PNARDL) in the form of an unrestricted error correction model (UECM) and a period from 1990 to 2019 were used. The empirical results indicated that the variable economic growth in both the short- and long-run have an increase of 0.6994 and 0.3192, respectively, and the variable public capital stock in the short-run has an increase of 0.0176 in CO2 emissions. However, the positive and negative asymmetry of the variable ratio of renewable energy in the short-and long-run has a decrease of −0.1320 (on positive variations) and −0.1131 (on negative variations) in the short run and −0.0364 (on positive variations) and −0.0783 (on negative variations) in the long run on CO2 emissions. The capacity of the ratio of renewable/fossil energy consumption to reduce environmental degradation is compatible with the renewable energy technological efficiency that produces more clean energy and fewer emissions. That was also in line with the increasing participation of renewable energy sources in the energy matrix in the LAC countries.

The composition of public spending and the inflationary effects of fiscal policy shocks

The paper uses structural proxy-vector autoregressions to separately identify shocks to US government investment and government consumption expenditures. Positive public investment shocks robustly raise inflation and have a weak and insignificant impact on labor productivity. In contrast, positive public consumption shocks induce a significant fall in inflation together with a strong and persistent increase in hourly productivity. The empirical findings are consistent with a model where demand shocks have an endogenous effect on productivity due to variable technology utilization. Increases in government investment, despite adding to a productive public capital stock, induce a relatively low endogenous increase in productivity and goods supply in the short run and thus are inflationary, whereas government consumption shocks can lead to a temporary productivity increase and inflation decrease if technology utilization is relatively inexpensive to vary.

The Impact of Real Government Spending in Physical and Social Infrastructures on Economic Growth

Most countries in the world undertake to achieve a high and sustainable economic growth due to it represents the economic welfare of countries. This study aims to analyze the effect of government spending in the physical and social infrastructures on economic growth, particularly in Indonesia by using secondary panel data 33 provinces during the period 2005-2018. Theoretically, usual economic growth model is highly affected by capital with flow characteristics. This study employs the capital stocks divided by physical and social infrastructures (public goods) consisting of Road and Bridge (BR), Irrigation, airport, port, health, and educational infrastructures as dominant variables. This study uses Panel ARDL model to investigate the functional relationship of economic growth and the public capital stocks in the short-term and long-term. The results show that all variables show a negative effect, except the road and bridge (RB) has a significant effect on economic growth in the short term. In the long term, roads and bridges (RB) and irrigation channel (IC) have a positive and significant effect on economic growth, but the others are not. These results are supported by the Pedroni Cointegration Test and KAO Cointegration Test which show a short-term and long-term balance. These findings underline that public infrastructure as capital stocks of each region with the appropriate infrastructure development play important role in sustaining the economic growth in Indonesia.

Financial reforms and capital accumulation in developing economies: New data and evidence

This study uses newly constructed data on structural reforms and private and public capital stock to assess the effects of financial reforms on capital formation in developing economies. We find that while both domestic and external financial reforms are important determinants of capital formation, the former is more influential in middle-income countries (MICs) and the latter in low-income countries (LICs). For LICs, external financial reforms work mostly through attracting FDI. For MICs, within domestic financial reforms, what matters most are measures related to strengthening banking supervision and reducing credit controls. These results are driven by capital formation in the private sector. In addition, these effects are nonlinear, and it is important for a country's policy when it comes to the sequence of implementing domestic and external financial reforms. Given the importance of public investment in decarbonization, this study further discusses the potential impacts of financial reforms on climate change and carbon inequality.

A Study on the Dynamic Evolution and Regional Differences of Public Capital and Return to Capital in China

Public capital plays a key role in national economic production in developing countries, and it has become the focus of factor reform in China. This paper aims at studying the dynamic characteristics of China’s public capital and the return rate. To this end, this paper inventories the public capital stock from 1978 to 2017; constructs a two-sector model to derive the necessary condition for optimal investment related to the return rate, and empirically tests it; estimates the output shares of the two sectors and calculates the rate of return to capital; and illustrates the dynamic evolution of public capital and the return rate from the time and regional dimensions. The study shows that, first, public capital has grown significantly. The portion of public capital held in the form of state-holding is increasing year by year. However, the proportion of public capital to total capital has decreased from 81% to 35%. Second, the growth of public capital has effectively balanced the gap of capital between regions. Third, the rate of return to capital has been decreasing, with two sectors’ return rates having converged in 1981 and in 2010–2013. This paper measures the stock of public capital and its return rate, which is beneficial for formulating the policy of public capital in economic production and distribution, as well as exploring the path to achieving common prosperity.

Recomputation of Public Capital Based on PIM and the Effect on China Regional Economic Growth

This paper first reestimates the public capital stock of each China province from 1994 to 2019 by improving the computing method of the components of the perpetual inventory method (PIM). Then, it brings the public investment and public capital into the extended Cobb-Douglas production function and explores the mechanism of public investment affecting economic growth from the regional perspective. Furthermore, through the analysis of the Local Government Financing Vehicles (LGFVs) as the major investor of local public investment during the last two decades, This paper confirms the importance of complementary factors such as institutional innovation and effective management of the public infrastructure in making public investment an “effective catalyst for growth” (Kessides, 1993).

The Economic Impact of Public Capital: Evidence from Chinese Prefectures and Firms

This study estimates the economic impact of public capital by constructing the public capital stock of 214 prefectures in China from 1999 to 2006 and combining the data of both prefectural economies and manufacturing firms. Using an instrumental variable estimation strategy, the empirical results show that public capital increases aggregate output in the economy, specifically in the secondary and tertiary sectors. Such growth mainly comes from the increased labor supply and reduced labor costs and, hence, more firms emerge.

The Relationship Between Production Inputs, Factor Substitution, and Economic Growth

Factors of production and elasticity of substitution play an essential role in economic growth accounting. Although production functions with constant elasticity of substitution between factors are more commonly utilized in growth accounting, studies based on production functions with variable elasticity of substitution are also conducted. Since production functions with variable elasticity of substitution provide more flexibility in parameters, they are more advantageous than other production functions. Besides, most studies focus on the elasticity of substitution between capital and labor. Studies on the sub-components of production factors are relatively few. In this study, capital stock is analyzed by dividing it into two subcomponents as public capital stock and private capital stock. The empirical results, in general, show that the elasticity of substitution between the public capital stock and the private capital stock is less than unity. In this context, public and private capital stock can be expressed as complementary inputs in the final production of goods and services. As a result, public expenditures on infrastructure can boost economic growth by raising the efficiency of private investments.

Do financial incentive policies for renewable energy development increase the economic growth in Latin American and Caribbean countries?

ABSTRACT This investigation approached the impact of financial incentive policies for renewable energy development on economic growth using panel data with seventeen countries from Latin America and the Caribbean (LAC) from 1990 to 2016. The fixed-effects model (FE) and the quantile via moments (QvM) models were used to accomplish this investigation. The FE and the QvM models showed that the financial incentive policies for renewable energy development and consumption of green energy, public and private capital stock, and globalisation increase economic activity in the countries from the LAC region, while gender inequality reduces it. Indeed, the positive impact of financial incentive policies for renewable energy development and consumption of green energy on economic growth could be related to the possible capacity of these policies to encourage investments in green energy technologies and the consumption of green energy.

Hysteresis and fiscal stimulus in a recession

The COVID-19 pandemic initiated a deep global recession, and with interest rates at very low levels, warrants consideration of the efficacy of different forms of fiscal stimulus in response. History reveals that deep recessions may cause output and total factor productivity (TFP) hysteresis, a permanent or highly persistent fall in the levels of output and TFP relative to pre-recession trends. This article analyses the output and welfare multipliers of fiscal stimulus during a recession using a macro model with TFP and output hysteresis. We find that transfer payments, public consumption and investment all have high output and welfare multipliers due to their positive effects on TFP in a recessionary environment. However, public investment has the highest output and welfare multipliers, because it has a more positive impact on labour productivity due to the increase in the public capital stock.

What effect does public and private capital have on income inequality? The case of the Latin America and Caribbean region

The effects that the Latin America and Caribbean capital stock (public and private) had on the income inequality levels of 18 countries from this region were analysed, over a period ranging from 1995 to 2017, recurring to an autoregressive distributed lag model in the form of an unrestricted error correction model. The results from the three models that were estimated (with the total capital stock, the public capital stock, and the private capital stock) pointed for the existence of an enhancing effect from the capital stock (public and private) on the income inequality of these countries in the short-run, suggesting that the investments were made in the already richer/wealthiest areas. In the long-run, the effects of capital stock on income inequality seem to vanish, probably due to the efforts to correct the previous detrimental effect. However, the lack of a statistically significant impact shows that, although the efforts, capital stock (public and private) still does not contribute to the income inequality reduction, meaning that these countries should improve/change the management and the selection criteria of their physical capital investments to be able to reduce their income gap.

The Wealth of Our Commonwealth: Money and Capital in the Productive Republic

There is a share of the investment capital available in any society that is generated by the public. In contemporary societies with well-developed payments systems and effective public governance, this share tends to grow large in comparison to that originated by non-public sources. For the latter is intermediated and thus must be pre-accumulated, while the former is generated and is the source of what is accumulated. In spite of these truths, the US outsources management of its public capital stock to private sector financial institutions. This is a practice which a host of under-appreciated collective action predicaments endemic to decentralized market exchange, most of them recursive and hence iteratively self-worsening without limit, ensures will result in misallocation and, therefore, poor modulation of credit aggregates as well. What is needed to draw public capital out of bubble-inflation and back into productive investment is to bring it back under public management, a project for which the present exposition provides a full architecture. This architecture is modeled as a stylized public balance sheet, taking the US Treasury and Federal Reserve System as consolidated case study. Public liabilities take the form of Democratic Digital Dollars issued through interest-bearing digital Business and Citizen Wallets. Public assets take the form of public credit extended by Treasury’s Federal Financing Bank (‘FFB’) and a newly ‘Spread Fed’ only for productive, not speculative, projects. A National Reconstruction & Development Council (‘NRDC’) and Price Stabilization Fund (‘The People’s Portfolio’) complete the picture, respectively affording democratic guidance as to what counts socially as ‘productive’ and collaring volatility among Systemically Important Prices and Indices (‘SIPIs’). Our public capital stock is a public resource in need of public management, which must be managed productively by and for the community.

The Macroeconomic Impact of Infrastructure Investment: A Review of Channels

This paper provides a critical review of the literature on the macroeconomic effects of public infrastructure investment associated with the main underlying transmission channels. Typically, this type of stimulus fosters economic activity in the medium-to-long run because the public capital stock needs time to build up and to exert its effects. However, under the current circumstances – such as considerable economic slack, policy rates constrained at zero and heightened uncertainty – the stimulus can be expansionary even at shorter horizons, i.e. from one to three years. Given the large infrastructure gaps in most emerging and advanced economies, infrastructure investment could have high returns in terms of individuals’ welfare and productivity growth. Strengthening health infrastructures, supporting maintenance investment, and coordinating infrastructure stimuli across countries emerge as particularly appropriate policies today.

Pakistan’s Infrastructure Capital-Growth Analysis

Purpose- This empirical study facet at Pakistan for the period between 1960 and 2017 in the connection between public investment, public capital stock, private investment, private capital stock, and real GDP. Design/Methodology- Using theoretical and empirical literature assessment, to measure the impact of private investment, private capital stock, government investment, and government capital stock on Pakistan's real gross domestic product, we involved the ARDL Bound tests. Findings- A positive and significant connection was revealed between government investment, a private capital stock with real GDP. Private investment showed a substantial but negative impact in the short run, despite capital stocks indicating a positive and insignificant relationship with Pakistan's RGDP. The long-term consequences showed that the government's capital stocks, public investment, private capital stocks, and RGDP from Pakistan are linked positively and significantly. Private investment, however, has shown harmful and detrimental or insignificant relations with Pakistan's RGDP. Practical Implications- Our study may benefit the Pakistani economy, particularly while useful for academics and researchers to understand the basic concept of 'capital-growth' philosophy.

Public Capital and Economic Development

AbstractPublic capital is sizable and its share in total capital is higher in poor countries. The standard development accounting approach does not distinguish it from private capital, ignoring its public good features. The goal of this paper is to measure public capital stocks for a wide range of countries, and then develop and implement a development accounting framework that explicitly includes its non-rival aspects. The paper finds that factors of production account for a significantly greater share of cross-country differences in output per worker compared to the standard framework. With both non-rivalry and congestion, the contribution of factors of production decreases.

The role of public and private transport infrastructure capital in economic growth. Evidence from Pakistan

Within the context of large investments in the China-Pakistan Economic Corridor (CPEC) which is part of China's Belt and Road Initiative, the investigation of the effect of transport infrastructure investments on economic growth is highly relevant for Pakistan. We analyse this relationship applying vector error correction models, Granger Causality tests, and impulse response analyses. We employ multiple model specifications to study the impact of private vs. public capital as well as physical capital stocks vs. monetary capital stocks on economic growth. In models including private capital stocks, we find support for the production function relation as causality goes from infrastructure to GDP. In models that include public capital stocks, causality goes from GDP to transport investments, thus favouring Wagner's law. Therefore we conclude that focusing on a good legal environment for private investors seems to be a good option for promoting growth in Pakistan.

Financing government investment and its implications for public capital: A small open economy perspective

Expenditure reductions played a key role in many small open economies during fiscal consolidation, with large declines in public investment. This led to a reduction in public capital stock and affected the competitiveness of these economies. After the sovereign debt crisis, the governments that consider increasing investment to replenish the public capital stock have limited fiscal space and have to avoid external imbalances. We show that using budget-neutral investment spending can generate long-term benefits of higher public capital stock while at the same time limiting negative consequences for the public finances and the trade balance. The best way of financing government investment, which preserves fiscal and trade balances, and increases welfare, is by reducing other government spending. The second-best is financing investment with value-added tax. Financing with debt worsens fiscal and trade balances, while using distortionary labour taxes reduces labour supply, increases wage costs and worsens the trade deficit in the short run.

Belize

The level of public investment in Belize has varied over the past years in the context of existing constraints. The sharp increase in public debt has limited available fiscal space.1 This has resulted in an increase in externally financed investments as a share of the capital budget and a growing interest in public private partnerships (PPPs) to help achieve the government of Belize’s national strategy objectives.2 However, the correlation between Belize’s public investment and GDP growth remains weak, and the public capital stock as a ratio to GDP shows a sharp deterioration, possibly pointing to investment inefficiencies.

Gabon

The development of infrastructure is one of the pillars of the Emerging Gabon Strategic Plan (PSGE). Implemented as of 2012, the PSGE has been establishing priority strategic guidelines to transform Gabon into an emerging economy by 2025. Its primary aims are to ensure and expedite the country’s sustainable development and growth by focusing on potential growth sectors. Public investment grew continuously from 2009 to 2013, when it peaked at 15.2 percent of GDP; it averaged 5.7 percent growth from 1990 to 2018. At the same time, private investment declined, as did growth and public capital stock. These outcomes indicate that public investment in Gabon does not drive growth and that investment expenditure does not automatically translate into actual accumulation of assets, which raises questions about the efficiency of those outlays.