On the interaction between public investment and private capital in economic growth
AbstractThis paper examines two possible sources of interaction between private and public capital in an endogenous growth model with productive public investment, which is used as an input both in the production of final output and in the production of new public capital. On the one hand ,public investment and private capital are complementary with each other in the production of goods. On the other, they can be either complementary or substitutes in the production of new productive public capital . In our model private and public capital are two reproducible productive inputs interacting with each other in goods production and in productive public capital investment. The share of public capital devoted to output production can be exogenous or endogenous, and we consider a Cobb-Douglas and a more general CES aggregate production function. Our main results are that, when the share of public capital devoted to output production is exogenous along the balanced growth path equilibrium the common growth rate is a negative function of this share and a positive function of the degree of complementarity between the two forms of capital in infrastructure capital investment. When the sectoral allocation of productive public capital is endogenous, the main determinant of the economy’s long run growth rate is, along with the model’s preferences parameters, the public capital’s share in GDP. Unlike existing literature (notably, Barro 1990), we find that the relationship linking the economy’s growth rate and the public capital’s share in GDP is U-shaped, rather than monotonically decreasing.
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Bibliographic InfoPaper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2009-44.
Date of creation: 03 Nov 2009
Date of revision:
Economic Growth; Complementarity; Productive Public Investment; Private Capital;
Other versions of this item:
- Alberto Bucci & Chiara Del Bo, 2009. "On the interaction between public investment and private capital in economic growth," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1092, Universitá degli Studi di Milano.
- Alberto Bucci & Chiara Del Bo, 2010. "On the Interaction between Public Investment and Private Capital in Economic Growth," DEGIT Conference Papers c015_007, DEGIT, Dynamics, Economic Growth, and International Trade.
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
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