The Quality of Public Investment
AbstractMacro-level estimates of the productivity of public capital are typically larger than micro-level estimates. The evidence also shows sizable cross-country differences in the quality of public capital. A general equilibrium growth model is introduced to explain both facts. The productivity of firms specializing in differentiated intermediate inputs depends on public capital whose provision is subject to bureaucratic corruption. Higher corruption lowers the quality of public capital and discourages specialization as well as development. Persistent difference in this quality results from multiple equilibrium levels of corruption. Simple calculations show that (i) relatively small micro-level productivity effects of public capital generate large macro-level effects, and (ii) quality differences in public capital can potentially explain a large fraction of the income gap between rich and poor nations.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.
Volume (Year): 11 (2011)
Issue (Month): 1 (August)
Contact details of provider:
Web page: http://www.degruyter.com
Other versions of this item:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
- D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
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