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Assessing the Contribution of Public Capital to Private Production: Evidence from the German Manufacturing Sector

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Andreas Stephan

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Abstract

Using time-series cross-section data from the manufacturing sector of the 11West German 'Bundesl ¨ander' (Federal States) from 1970 to 1996, I examine the impact of public capital on private production. My econometric analysis explicitly takes into account four of the most frequent specification issues in the context of time-series cross-section data analysis: serial correlation, groupwise heteroscedasticity, cross-sectional correlation and nonstationarity of data. For all approaches and tested specifications, I find that public capital is a significant input for production in the manufacturing sector. Moreover, I find that differences in public capital endowment can explain long-term differences in productivity across the Bundesl¨ander. One tentative conclusion that can be drawn from this finding is that differences in public capital endowment might also explain a part of the still-existing productivity gap between manufacturing in East and West Germany. However, I emphasise that the existence of positive effects of public capital on private production is a necessary, but not a sufficient condition for concluding that public investments should be boosted in the future

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 315.

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Length: 29 p.
Date of creation: 2002
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Handle: RePEc:diw:diwwpp:dp315

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  7. Holtz-Eakin, Douglas, 1994. "Public-Sector Capital and the Productivity Puzzle," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 12-21, February. [Downloadable!] (restricted)
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  11. Georg Erber, 1995. "Public Infrastructure, Productivity and Competitiveness: Analysis of Relative Differences and Impacts with Regard to U.S. and German Industries," Discussion Papers of DIW Berlin 115, DIW Berlin, German Institute for Economic Research.
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  13. Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September. [Downloadable!] (restricted)
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  22. Badi H. Baltagi & Chihwa Kao, 2000. "Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey," Center for Policy Research Working Papers 16, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
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  25. 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. [Downloadable!] (restricted)
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  1. Heinz Handler & Andreas Knabe & Bertrand Koebel & Margit Schratzenstaller & Sven Wehke, 2005. "The Impact of Public Budgets on Overall Productivity Growth," WIFO Working Papers 255, WIFO. [Downloadable!]
  2. Pellervo Hamalainen, 2009. "Review of literature on the productivity of public capital," Discussion Papers 55, Aboa Centre for Economics. [Downloadable!]
  3. Emanuela Marrocu & Raffaele Paci, 2006. "The effects of public capital on the productivity of the Italian regions," Working Paper CRENoS 200613, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia. [Downloadable!]
  4. Pedro R.D. Bom & Jenny E. Ligthart, 2009. "How Productive is Public Capital? A Meta-Regression Analysis," International Studies Program Working Paper Series, at AYSPS, GSU paper0912, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
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