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Returns to Publicly Owned Transport Infrastructure Investment . A Cost Function/Cost Share Approach for Norway, 1971-1991

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Abstract

An issue of major concern to politicians and policy-makers around the world today is whether transport infrastructure investments, such as those in roads and airports, generate enough economic benefits to justify their very large price tag. Beginning in the mid 1970s, nearly all OECD countries experienced a sustained decline both in public investment and in private sector output. Since infrastructure comprises the vast majority of public capital in these countries, this led many economists to conclude that underinvestment in infrastructure was largely responsible for the low growth rates in output and productivity which were experienced by these countries. In our paper, we discuss the findings in the literature with respect to both econometric and modeling deficiencies. Based on these criticisms, we develop a cost function modeling approach which includes public transport infrastructure capital, perform an econometric analysis and discuss several of our estimates of infrastructure productivity effects. The paper concludes that, in nearly all production sectors (except oil/agriculture), the public transport infrastructure investments made in Norway over the last 20 years significantly reduced private production costs and altered demand for private inputs. However, we find such effects to be statistically insignificant at the aggregate level.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 154.

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Date of creation: Sep 1995
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Handle: RePEc:ssb:dispap:154

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Keywords: Infrastructure; public transport investment; economic growth.;

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  1. Lynde, Catherine & Richmond, J, 1993. "Public Capital and Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 401-14, May.
  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.
  3. Nadiri, M. Ishaq & Mamuneas, Theofanis P., 1991. "The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of U.S. Manufacturing Industries," Working Papers 91-57, C.V. Starr Center for Applied Economics, New York University.
  4. Ernst R. Berndt & Bengt Hansson, 1991. "Measuring the Contribution of Public Infrastructure Capital in Sweden," NBER Working Papers 3842, National Bureau of Economic Research, Inc.
  5. Andrew C. Harvey, 1990. "The Econometric Analysis of Time Series, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026208189x, January.
  6. David Alan Aschauer, 1990. "Why is infrastructure important?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 34, pages 21-68.
  7. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, January.
  8. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  9. Seitz, Helmut, 1994. "Public capital and the demand for private inputs," Journal of Public Economics, Elsevier, vol. 54(2), pages 287-307, June.
  10. John A. Tatom, 1991. "Public capital and private sector performance," Review, Federal Reserve Bank of St. Louis, issue May, pages 3-15.
  11. 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.
  12. 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.
  13. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  14. 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.
  15. Seitz, Helmut, 1993. "A Dual Economic Analysis of the Benefits of the Public Road Network," The Annals of Regional Science, Springer, vol. 27(3), pages 223-39, September.
  16. Eisner, Robert, 1994. "Real government saving and the future," Journal of Economic Behavior & Organization, Elsevier, vol. 23(2), pages 111-126, March.
  17. 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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