Public Capital Stock Research Articles

Effects of an anticipated expansion in international public goods on public capital accumulation

This paper presents a generic model to include public capital accumulation and the services of international public goods provided by a neighbor country. It examines the long-run and short-run responses of private and public capital accumulation in the home country to an anticipated increase in international public goods. It is found that the home economy in effect cuts its public capital stock, but keeps an unchanged private capital stock in the long run when a neighbor commits itself to expanding the stock of public goods in the future. The key factor determining the short-run responses of the home country is the extent to which it will match its government spending with a neighbor country's policy, which is associated with the relative difference between the marginal utility of consumption and that of home public capital affected by an increase in international public goods.

Is There a Lack of Public Capital in the European Union?

This paper investigates whether there is a lack of public capital in European Union countries. The analysis builds on a new database providing internationally comparable capital stock estimates for 22 OECD countries, among these 14 EU countries, for the period 1960-2001. A simple model of endogenous growth is used in order to highlight the inherently nonlinear relationship between public capital and economic growth and in order to derive a measure of the growth-maximizing public capital stock. Against this background the empirical analysis provides estimates of the growth-maximizing level of public capital for EU countries. The empirical results suggest that there currently is no lack of public capital in most 'old' EU countries.

The Productivity of Public Capital: Evidence from the 1994 Electoral Reform of Japan

This paper attempts to estimate the causal effect of public capital stock on production using Japanese prefectural data. We first articulate the difficulty of consistently estimating the regional-level production function with public capital due to the endogeneity of the public capital stock amount. As the central government allocates most of the public capital across regions in Japan, the stock amount of public capital could be endogenous because it could be allocated to either booming regions to support private activity or to stagnating regions to help them become more productive. The endogeneity of public capital is more serious when local governments make decisions regarding public capital investments, as in the US, because such decisions are directly affected by local governments' budgetary constraints. We need an exogenous variation of public capital investment across regions in order to estimate the causal effect of public capital on production. Japan's electoral reform in 1994 offers an exogenous variation of this sort. The reform drastically changed the distribution of political representation in the Lower House across regions, and it accordingly changed the allocation of public capital across regions as well. The productivity of public capital based on this natural experimental identification strategy indicates higher productivity due to public capital than indicated by the OLS estimation.

PROPOSAL FOR A NEW MEASURE OF CORRUPTION, ILLUSTRATED WITH ITALIAN DATA

Standard cross-national measures of corruption are assembled through surveys. We propose a novel alternative objective measure that consists of the difference between a measure of the physical quantities of public infrastructure and the cumulative price government pays for public capital stocks. Where the difference is larger between the monies spent and the existing physical infrastructure, more money is being siphoned off to mismanagement, fraud, bribes, kickbacks, and embezzlement; that is, corruption is greater. We create this measure for Italy's 95 provinces and 20 regions as of the mid-1990s, controlling at the regional level for possible differences in the costs of public construction.

Insecure Property Rights and Growth: The Roles of Appropriation Costs, Wealth Effects, and Heterogeneity

We extend the model of insecure property rights by Tornell and Velasco (1992) and Tornell and Lane (1999) by adding three features: (i) extracting the common property asset involves a private appropriation cost, (ii) agents derive utility from wealth as well as from consumption, and (iii) agents can be heterogeneous. We show that both an increase in the appropriation cost and, when appropriation costs vary across agents, an increase in the degree of heterogeneity of these costs reduce the growth rate of the public capital stock. We also show that, in the interior equilibrium, the private asset can have either a lower or a higher money rate of return than the common property asset.

The Effects of Public Capital on the Growth in Spanish Productivity

The aim of the article is to provide new evidence concerning the effect of public capital on productivity growth in Spain. To this end, the article follows the growth accounting approach, which, in addition to measuring both the direct and indirect effects of public capital on the total factor productivity, allows for assessing whether there is a distinctive impact of public capital across economic sectors. The results lead to three main conclusions: (1) Public capital has a strong influence on growth when we use data from the whole economy; (2) this influence varies across sectors, being more relevant in the exposed sectors (industry) than in sheltered sectors (agriculture, construction, and services); and (3) irrespective of the definition used for public capital, these basic results remain unchanged. (JEL C30, E62, H54, O47, O52)

Public capital formation and labor productivity growth in Mexico

This paper addresses the important question whether public investment spending on economic infrastructure enhances economic growth and labor productivity in Mexico. Following the lead of the endogenous growth literature, it presents a modified production function which explicitly includes the positive or negative externality effects generated by additions to the public capital stock. Using cointegration analysis, the paper proceeds to estimate a dynamic labor productivity function for the 1955–94 period that incorporates the impact of the growth rate in the stocks of both private and public capital (as opposed to the flows) and the economically active population (EAP) (rather than the rate of population growth). The results suggest that (lagged) increases in public investment spending on economic infrastructure—as opposed to overall public investment spending—have a positive and highly significant effect on the rate of labor productivity growth. In addition, the estimates suggest that increases in government consumption expenditures may have a negative effect on the rate of labor productivity growth, thus suggesting that the composition of government spending may also play an important role in determining the rate of labor productivity growth. Finally, the findings call into question the politically expedient policy in many Latin American countries of disproportionately reducing public capital expenditures on economic and social infrastructure to meet targeted reductions in the fiscal deficit as a proportion of GDP.

THE ROLE OF PUBLIC CAPITAL IN THE ECONOMIC DEVELOPMENT PROCESS

This paper reviews the evidence of public infrastructure's impact on economic development. The evidence indicates the marginal net social returns is low. The paper also examines the effect of economic, demographic, and political forces on infrastructure investment. Finally, the literature suggests that improving maintenance and reducing congestion can greatly increase the benefits from the existing public capital stock.

Output and Employment Effects of Public Capital

This paper develops a two-equation model linking public capital to employment and output growth. the basic innovation is that the relationship between public capital and economic growth is non-linear, which allows an estimate of the growth-maximizing level of public capital (relative to private capital). the model is empirically implemented using a variety of estimation procedures with data for the 48 contiguous United States over the period from 1970 to 1990. Some of the more significant findings of the paper include: generally positive effects of public capital on economic growth (both in terms of output and employment); an estimated value of the growth-maximizing public capital stock between 50 and 70 percent of the private capital stock; negative effects of public debt and taxes on economic growth; somewhat higher growth effects from public capital in the 1980s than the 1970s; and somewhat larger growth effects from public capital in the Snowbelt than in the Sunbelt.

Estimating the contribution of public capital with times series production functions: a case of unreliable inference

This paper assesses the magnitude of bias in reported estimates of the productive contribution of public capital stock to private factors productivity and growth. The standard approach is taken, based on a production function, in order to estimate structural parameters on simulated pseudo samples generated from a stochastic general equilibrium model.

Do states optimize? Public capital and economic growth

This paper develops a non-linear theoretical relationship between public capital and economic growth in order to obtain estimates of the growth-maximizing ratio of public capital to private capital. The model is empirically implemented using data on the 48 contiguous U.S. states over the period 1970 to 1990. The empirical results provide evidence that (i) the relationship between public capital and economic growth is non-linear, (ii) the growth-maximizing public capital stock is approximately 60% to 80% as large as the private (tangible) capital stock, and (iii) permanent changes in public capital are associated with permanent changes in economic growth.

Assessing the Productivity of Public Capital with a Locational Equilibrium Model

This paper employs Roback's locational-equilibrium model of public-goods pricing, cross-sectional data from the Census of Population and Housing, and SMSA-level estimates of public capital stocks in order to examine the productive contribution of public capital. I find that public capital has a small positive impact on private output.

The Regional Allocation of Public Investment: Efficiency or Equity?

In this paper we examine the effect of public investment on the regional economies of Japan. The efficient policy for regional allocation of public capital is to invest in highly productive regions, whereas the actual policy pursues equity goals by allocating more public investment to depressed regions. We determine the effects of this equity‐ oriented allocation by estimating the aggregate regional production function and calculating the productivity of public capital stock for each region, using a cross‐sectional time‐series data set. Our results show that the marginal productivity of public capital has recently declined in most depressed regions, whereas the productivity in developed regions (e.g., Tokyo, Osaka) has increased slightly. We compare alternative policies of allocating public investment and their effects on the regional and national economies using numerical simulations. We then quantitatively describe the trade‐off between the efficient and the equitable allocation of public investment.

Assessing the Productivity of Public Capital with a Locational Equilibrium Model

This paper employs Roback's locational-equilibrium model of public-goods pricing, cross-sectional data from the Census of Population and Housing, and SMSA-level estimates of public capital stocks in order to examine the productive contribution of public capital. I find that public capital has a small positive impact on private output.

Estimates of optimal public capital stocks in Japan using a public investment discount rate framework

The purpose of this paper is to empirically assess the optimality of the level of public capital in Japan. We use a methodological approach based on Burgess's (1988) procedure for calculating the public discount rate. This approach involves estimating a production function, but does not necessarily require utility function estimation. The results indicate that, although the Japanese economy experienced a public capital deficiency over the period 1960–1982, public capital moved toward optimal levels throughout the period.

Testing for long run relationship between infrastructure and private capital productivity: a time series analysis for the Greek industry

This paper addresses the question of whether there is a long run relationship between infrastructure and private capital productivity of Greek industry. Causality issues are also discussed. The results provide evidence in favour of productivity enhanced by public capital stock, and of no feedback from the former to the later.

The Relationship Between Public and Private Investment

The relationship between government spending and aggregates such as output, employment, and prices has been the subject of many theoretical and empirical studies. Recently, however, interest has shifted to government spending on the provision of public capital (measured as fixed, nonresidential government capital) and various indicators of economic performance. Hence, government spending is now recognized to extend beyond the traditional view of strictly purchasing goods and services: The provision of public infrastructure has become an integral component. Erenburg finds that empirical estimates from the short-run, first-difference model indicate that each additional one percentage point increase in public infrastructure and government investment spending is associated with an approximate three-fifths of a percentage point increase in private of a percentage point increase in private sector equipment were obtained by using the Stock-Watson method for testing for long-run relationships when variables are integrated of higher order, including different orders. These estimates indicate an increase of approximately two-fifths of a percentage point in private equipment investment per year. Projections reveal that if the rate of growth of public capital stock had continued from 1966 through 1987 at the 1947-1965 average annual growth rate (instead of decreasing), the growth rate of private sector equipment investment would have been between 4 to 6 percentage points above the actual rate of growth. In addition to the impact on economic growth, Aschauer (1989) and Erenburg (1993) find a positive correlation between the public provision of infrastructure and private investment. As private investment activity enhances future growth of real income, these statistical results confirm that public policy has permanent effects on real output. The empirical results confirm that public policy has permanent effects on real output. The empirical results indicate that private sector equipment investment is inversely related to government investment spending and directly related to the existing public capital stock. Also, private equipment investment is much more sensitive to public provision of capital than either structures investment. These findings suggest that public infrastructure has an overall stimulative effect on private investment activity in the United States: In essence, these results verify Aschauer's, while addressing concerns of spurious correlation.

Productivity, Private and Public Capital, and Real Wage in the United States 1948-1990

This paper examines the relationship between real wages in the United States and productivity. The measure of productivity includes the impact of public capital as well as private capital. Both neo-classical and Keynesian theories predict that real wages increase with increases in the capital stock and technical progress, and move inversely over business cycles. However, the question of whether real wages are cyclical or countercyclical has not been confirmed by empirical studies. These studies, however, ignore the impact of public capital on productivity. Using Cobb-Douglas production function estimates, this paper incorporates the impact of public capital on productivity and real wage. The results indicate that when the capital stock is controlled for, real wage is countercyclical, and validate diminishing returns to labor, positive returns to public capital and a procyclical effect of capacity utilization on real wage. Addressing stationarity concerns, estimates from the productivity equation establish a long-run relationship between productivity, measured as output per unit of capital, and employment to capital ratio, and the public capital to private capital ratio. Estimates from the real wage equation indicate that a long-run relationship exists hetween real wage and labor productivity and the public to private capital ratio. Using the statistical estimates herein, if the public capital stock had remained at the historical 1948-1965 ratio, rather than declining, productivity would have been between 2.4 and 2.9 percentage points higher and real wages would have been between 2 to 2.8 percentage higher, ceteris paribus. These projections translate into a potential increase in gnp per capita and a higher, rather than stagnating, standard of living.

Public Capital and Economic Growth: Issues of Quantity, Finance, and Efficiency

Over the past decade, a large body of theoretical and empirical research has considered the importance of the quantity of public capital for economic growth. For the most part, the empirical results point to a positive role for public capital in determining steady state levels of output per capita and transitional growth rates. At the same time, other work has pointed out the importance of the means of financing government spending for economic growth, with the empirical results indicating a negative influence of higher government spending (proxying for a higher rate of taxation of private sector economic activities) on economic growth. Finally, there is a budding literature on the importance of the effectiveness, or efficiency, of public capital to the growth process; the limited results in the literature suggest that the effectiveness of use of the public capital stock has a meaningful positive influence on growth. This paper develops a common framework to investigate the importance of all three of these aspects of the provision of public capital for growth in output per worker. The paper includes a simple extension of the neoclassical growth model of Solow (1956) and Swan (1956), and a consideration of the relative importance of the three aspects of public capital: much you have, you pay for it, and how you use it.

Productivity, private and public capital, and real wage in the US

This paper examines the relationship between real wages and productivity in the United States from 1948–90, by including in the measure of productivity the impact of public capital as well as private capital. The results confirm recent studies that have indicated that when the private and public capital stock is controlled for, real wage is countercyclical, and validate diminishing returns to labour, positive returns to public capital and a procyclical effect of capacity utilization on real wage. Further, the issue of spurious regression bias that arises when variables are nonstationary was addressed, and long run relationships were then estimated. Results establish a long-run relationship between productivity, real wage, the employment to capital ratio, and public to private capital ratio. Using the statistical estimates herein, if the public capital stock had remained at the historical 1948–65 ratio, rather than declining, productivity would have been between 2.4 and 2.9 percentage points higher and real wages would have been between 2 to 2.8 percentage points higher, ceteris paribus.