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Public capital and private sector productivity - a Finnish perspective

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Author Info

  • Tom Björkroth

    (Department of Economics and Statistics, Åbo Akademi University, Finland)

  • Anders Kjellman

    (Department of Economics and Statistics, Åbo Akademi University, Finland)

Abstract

This paper focuses on the impact of the public sector capital on private sector productivity in Finland. The majority of previous contributions support the public capital hypothesis, i.e. that public capital plays an important role in enhancing private sector productivity. However, the contribution of Tatom (1991a) sheds new light on this issue. He shows that by correcting the previously used models of some of their most serious deficiencies, the impact of public capital is no longer significant for private sector productivity. We have applied Tatom’s approach to Finnish data, and our results are similar to his findings. However, our results concerning the precedence between public capital and private sector output provide some evidence of causation running from public capital to private sector output, i.e. our results indicate that, if correctly targeted, public capital investment could affect private sector performance.

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Bibliographic Info

Article provided by Finnish Economic Association in its journal Finnish Economic Papers.

Volume (Year): 13 (2000)
Issue (Month): 1 (Spring)
Pages: 28-44

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Handle: RePEc:fep:journl:v:13:y:2000:i:1:p:28-44

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Web page: http://www.taloustieteellinenyhdistys.fi
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References

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  1. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  2. William Easterly & Sergio Rebelo, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," NBER Working Papers 4499, National Bureau of Economic Research, Inc.
  3. Shah, Anwar, 1992. "Dynamics of Public Infrastructure, Industrial Productivity and Profitability," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 28-36, February.
  4. Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1996. "Is Fixed Investment the Key to Economic Growth?," NBER Working Papers 4436, National Bureau of Economic Research, Inc.
  5. Madden, Gary G & Savage, Scott J, 1997. "CEE telecommunications investment and economic growth," MPRA Paper 11843, University Library of Munich, Germany, revised 25 Jul 1997.
  6. Alicia H. Munnell, 1992. "Policy Watch: Infrastructure Investment and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 189-198, Fall.
  7. John A. Tatom, 1991. "Public capital and private sector performance," Review, Federal Reserve Bank of St. Louis, issue May, pages 3-15.
  8. Lynde, Catherine & Richmond, James, 1992. "The Role of Public Capital in Production," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 37-44, February.
  9. Ratner, Jonathan B., 1983. "Government capital and the production function for U.S. private output," Economics Letters, Elsevier, vol. 13(2-3), pages 213-217.
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Citations

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Cited by:
  1. Jukka Jalava, 2002. "Accounting for Growth and Productivity: Finnish Multi-Factor Productivity 1975-99," Finnish Economic Papers, Finnish Economic Association, vol. 15(2), pages 76-86, Autumn.
  2. Pellervo Hamalainen, 2009. "Review of literature on the productivity of public capital," Discussion Papers 55, Aboa Centre for Economics.
  3. Musisi, A.A., 2006. "Physical public infrastructure and private sector output/productivity in Uganda: a firm level analysis," ISS Working Papers - General Series 19182, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.

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