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Public-Sector Capital and the Productivity Puzzle

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Author Info
Douglas Holtz-Eakin
Abstract

A number of studies have suggested a quantitatively important relationship between public-sector capital accumulation and private sector productivity, with the most compelling evidence derived from analyses of state-level data. Estimates herein of production functions that use standard techniques to control for unobserved, state-specific characteristics, however, reveal essentially no role for public-sector capital in affecting private sector productivity. Only estimates of state production functions that do not include such controls find substantial productivity impacts. This result reconciles existing econometric estimates with the findings of Hulten and Schwab based on growth accounting techniques, as such techniques effectively control for state-specific effects. Region-level estimates are essentially identical to those from state data, suggesting no quantitatively important spillover effects across states.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4122.

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Date of creation: Jul 1992
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Publication status: published as Review of Economics and Statistics, Vol. 76, No. 1, 1994, pp. 12-21.
Handle: RePEc:nbr:nberwo:4122

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  1. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March. [Downloadable!] (restricted)
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  2. Alicia H. Munnell & Leah M. Cook, 1990. "How does public infrastructure affect regional economic performance?," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 11-33.
    Other versions:
  3. Kevin T. Duffy-Deno & Randall W. Eberts, 1989. "Public infrastructure and regional economic development: a simultaneous equations approach," Working Paper 8909, Federal Reserve Bank of Cleveland. [Downloadable!]
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  4. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November. [Downloadable!] (restricted)
  5. Holtz-Eakin, D., 1989. "The Spillover Effects Of State-Local Capital," Discussion Papers 1989_20, Columbia University, Department of Economics.
  6. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November. [Downloadable!] (restricted)
  7. Robert Eisner, 1991. "Infrastructure and regional economic performance: comment," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 47-58.
  8. David A. Aschauer, 1989. "Public investment and productivity growth in the Group of Seven," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 17-25.
  9. Randall W. Eberts, 1990. "Public infrastructure and regional economic development," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 15-27. [Downloadable!]
  10. Hausman, Jerry A. & Taylor, William E., 1981. "Panel data and unobservable individual effects," Journal of Econometrics, Elsevier, vol. 16(1), pages 155-155, May. [Downloadable!] (restricted)
  11. Holtz-Eakin, D., 1988. "Private Output, Government Capital, And The Infrastructure Crisis," Discussion Papers 1988_08, Columbia University, Department of Economics.
  12. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-98, November. [Downloadable!] (restricted)
  13. Alicia H. Munnell, 1990. "Why has productivity growth declined? Productivity and public investment," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-22.
  14. Randall W. Eberts, 1986. "Estimating the contribution of urban public infrastructure to regional growth," Working Paper 8610, Federal Reserve Bank of Cleveland. [Downloadable!]
  15. Randall W. Eberts, 1990. "Cross-sectional analysis of public infrastructure and regional productivity growth," Working Paper 9004, Federal Reserve Bank of Cleveland. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pedro Cavalcanti Gomes Ferreira, 1998. "Inflationary Financing of Public Investment and Economic Growth," Economics Working Papers (Ensaios Economicos da EPGE) 322, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  2. Pritchett, Lant, 1996. "Mind your P's and Q's : the cost of public investment is not the value of public capital," Policy Research Working Paper Series 1660, The World Bank. [Downloadable!]
  3. Leandro Gonçalves do Nascimento & Pedro Cavalcanti Gomes Ferreira, 2005. "Welfare and Growth Effects of Alternative Fiscal Rules for Infrastructure Investment in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 604, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  4. William Easterly & Sergio Rebelo, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," NBER Working Papers 4499, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Pritchett, Lant, 2000. "The tyranny of concepts - CUDIE (Cumulated, Depreciated Investment Effort) is NOT capital," Policy Research Working Paper Series 2341, The World Bank. [Downloadable!]
    Other versions:
  6. Sharon J. Erenburg, 1993. "Productivity, Private and Public Capital, and Real Wage in the United States, 1948-1990," Economics Working Paper Archive 94, Levy Economics Institute, The. [Downloadable!]
  7. Ingram, Gregory K. & Zhi Liu, 1997. "Motorization and the provision of roads in countries and cities," Policy Research Working Paper Series 1842, The World Bank. [Downloadable!]
  8. Musisi, A.A., 2006. "Physical public infrastructure and private sector output/productivity in Uganda: a firm level analysis," Working Papers - General Series 424, Institute of Social Studies. [Downloadable!]
  9. Steven P. Cassou & Kevin J. Lansing, 1995. "Optimal fiscal policy, public capital, and the productivity slowdown," Working Paper 9509, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  10. Ingram, Gregory K., 1997. "Patterns of metropolitan development : what have we learned?," Policy Research Working Paper Series 1841, The World Bank. [Downloadable!]
  11. Mary Finn, 1993. "Is all government capital productive?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 53-80. [Downloadable!]
  12. Somik Lall, 2007. "Infrastructure and regional growth, growth dynamics and policy relevance for India," The Annals of Regional Science, Springer, vol. 41(3), pages 581-599, September. [Downloadable!] (restricted)
  13. Antonis Rovolis & Nigel Spence, 1998. "Duality theory and cost function analysis in a regional context: the impact of public infrastructure capital in the Greek Regions," ERSA conference papers ersa98p465, European Regional Science Association. [Downloadable!]
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