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Spillover effects of public capital formation : evidence from the spanish regions

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  • Alfredo Marvao Pereira

    ()
    (Department of Economics The College of William and Mary)

  • Oriol Roca Sagalés

    ()
    (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)

Abstract

Maybe because of the inconclusive nature of the results on the impact of public capital on output at the regional level, the issue of the possible existence of the regional spillovers from public capital formation has received little attention. The objective of this paper is to provide evidence on the possible existence of such spillovers. We consider the case of Spain and its seventeen regions. Our methodological approach consists in estimating an aggregate VAR model for Spain as well as seventeen region-specific VAR models in which both capital installed in the region and capital installed outside the region are allowed to play a role in enhancing regional output. The estimation results can be summarized as follows. The aggregate effects of public capital formation in Spain are important. They cannot, however, be captured in their entirety by the direct effects in each region from public capital installed in the region itself. When for each region both the capital installed in the region and the capital installed outside the region are considered the total disaggregated effect from the seventeen regional models are very much in line with the aggregate results. Furthermore, the aggregate effect seems to be due in almost equal parts to the direct and spillover effects of public capital formation. Ultimately, this paper establishes the relevance of both capital installed in each region and spillover effects in the understanding of the regional decomposition of the aggregate effects of public capital formation. In doing so it opens the door to some tantalizing and potentially highly charged research issues in terms of the determination of the optimal location of public investment projects.

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Bibliographic Info

Paper provided by Department of Applied Economics at Universitat Autonoma of Barcelona in its series Working Papers with number wpdea0210.

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Length: 20 pages
Date of creation: Sep 2002
Date of revision:
Handle: RePEc:uab:wprdea:wpdea0210

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Keywords: public capital; regional spillovers;

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