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The productivity of public capital: Evidence from Japan's 1994 electoral reform

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  • Kawaguchi, Daiji
  • Ohtake, Fumio
  • Tamada, Keiko

Abstract

This paper estimates 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 that results from the endogeneity of the public capital stock amount. The public capital amount could be endogenous because of the central government's political decision-making process of public capital allocation or the local government's budgetary constraints. Japan's electoral reform in 1994 offers an exogenous variation in the public capital investment across regions, and we exploit this event to estimate the causal effect of public capital on production. 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. We cannot reject the null hypothesis that public capital is not productive based on the estimates from this natural experimental identification strategy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 23 (2009)
Issue (Month): 3 (September)
Pages: 332-343

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Handle: RePEc:eee:jjieco:v:23:y:2009:i:3:p:332-343

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Web page: http://www.elsevier.com/locate/inca/622903

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Keywords: Public capital Productivity Political economy Instrumental variable estimation;

References

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  1. Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197, December.
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  12. Evans, Paul & Karras, Georgios, 1994. "Are Government Activities Productive? Evidence from a Panel of U.S. States," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 1-11, February.
  13. Meyer, Steven A & Naka, Shigeto, 1998. " Legislative Influences in Japanese Budgetary Politics," Public Choice, Springer, vol. 94(3-4), pages 267-88, March.
  14. Douglas Holtz-Eakin & Mary E. Lovely, 1995. "Scale Economies, Returns to Variety, and the Productivity of Public Infrastructure," NBER Working Papers 5295, National Bureau of Economic Research, Inc.
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  16. Shioji, Etsuro, 2001. " Public Capital and Economic Growth: A Convergence Approach," Journal of Economic Growth, Springer, vol. 6(3), pages 205-27, September.
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Citations

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Cited by:
  1. Anca-Stefania Sava & Bogdan-Gabriel Zugravu, 2010. "Analysis of the Correlations Between Public Capital Investments and Economic Development in Romania," Studies and Scientific Researches. Economics Edition, "Vasile Alecsandri" University of Bacau, Faculty of Economic Sciences, issue 15.
  2. Higashikata, Takayuki, 2013. "Factor decomposition of income inequality change : Japan's regional income disparity from 1955 to 1998," IDE Discussion Papers 400, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  3. Iwata, Yasuharu, 2013. "Two fiscal policy puzzles revisited: New evidence and an explanation," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 188-207.

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