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Productivity of public spending, sectoral allocation choices, and economic growth

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  • Baffes, John
  • Shah, Anwar

Abstract

The authors examine the composition of public spending and its implications for economic growth. They use a translog production function by treating gross domestic product as the output and labor, private capital, and several types of public sector capital stocks as the inputs, using time series data for 25 countries for 1965-84. The production functions of all but four countries exhibited increasing returns to scale. The highest output elasticity was for human resource development capital, followed by private capital and labor. Output elasticity of infrastructure capital was found to be relatively small, with the exception of Latin American countries where it exhibited relatively high values. Military capital had negative output elasticity in slightly more than half of the cases considered. The results suggest that reshaping public spending priorities in favor of human resource development and away from military spending would positively stimulate world economic renewal.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1178.

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Date of creation: 30 Sep 1993
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Handle: RePEc:wbk:wbrwps:1178

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Keywords: Economic Theory&Research; Environmental Economics&Policies; Economic Growth; Inequality; Banks&Banking Reform;

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References

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  1. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  2. Berndt, Ernst & Hansson, Bengt, 1992. "Measuring the Contribution of Capital in Sweden," Working Paper Series, Research Institute of Industrial Economics 365, Research Institute of Industrial Economics.
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  4. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series, The World Bank 609, The World Bank.
  5. Murphy, Kevin M. & Shleifer, Andrei & Vishny, Robert W., 1989. "Industrialization and the Big Push," Scholarly Articles 3606235, Harvard University Department of Economics.
  6. Shah, Anwar, 1988. "Public infrastructure and private sector profitability and productivity in Mexico," Policy Research Working Paper Series, The World Bank 100, The World Bank.
  7. McElroy, F W, 1969. "Returns to Scale, Euler's Theorem, and the Form of Production Functions," Econometrica, Econometric Society, Econometric Society, vol. 37(2), pages 275-79, April.
  8. Landau, Daniel, 1993. "The economic impact of military expenditures," Policy Research Working Paper Series, The World Bank 1138, The World Bank.
  9. Berndt, Ernst R & Hansson, Bengt, 1992. " Measuring the Contribution of Public Infrastructure Capital in Sweden," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 94(0), pages S151-68, Supplemen.
  10. Antle, John M, 1983. "Infrastructure and Aggregate Agricultural Productivity: International Evidence," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 31(3), pages 609-19, April.
  11. 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.
  12. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 401-14, May.
  13. Gordon R. Richards, 1992. "Endogenous Technological Advance and Postwar Economic Growth: A Production Function Analysis," Eastern Economic Journal, Eastern Economic Association, Eastern Economic Association, vol. 18(3), pages 315-331, Summer.
  14. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
  15. Alicia H. Munnell, 1990. "Why has productivity growth declined? Productivity and public investment," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Jan, pages 3-22.
  16. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Ferreira, Pedro Cavalcanti Gomes & Nascimento, Leandro Gonçalves do, 2005. "Welfare and Growth Effects of Alternative Fiscal Rules for Infrastructure Investment in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 604, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  2. Nijkamp, Peter & Poot, Jacques, 2004. "Meta-analysis of the effect of fiscal policies on long-run growth," European Journal of Political Economy, Elsevier, Elsevier, vol. 20(1), pages 91-124, March.
  3. Wei Zou & Fen Zhang & Ziyin Zhuang & Hairong Song, 2008. "Transport Infrastructure, Growth, and Poverty Alleviation: Empirical Analysis of China," Annals of Economics and Finance, Society for AEF, vol. 9(2), pages 345-371, November.
  4. repec:wyi:journl:002193 is not listed on IDEAS
  5. Peng, Ling & Hong, Yongmiao, 2013. "Productivity spillovers among linked sectors," China Economic Review, Elsevier, Elsevier, vol. 25(C), pages 44-61.
  6. Randolph, Susan & Bogetic, Zeljko & Hefley, Dennis, 1996. "Determinants of public expenditure on infrastructure : transportation and communication," Policy Research Working Paper Series, The World Bank 1661, The World Bank.
  7. Ahmed, Sadiq & Ranjan, Priya, 1995. "Promoting growth in Sri Lanka : lessons from East Asia," Policy Research Working Paper Series, The World Bank 1478, The World Bank.
  8. Johannes Steinbrecher & Christian Thater & Marcel Thum & Oskar Krohmer, 2010. "Langfristige Prognose der Einnahmeentwicklung für den Landeshaushalt des Freistaates Sachsen bis zum Jahr 2025 : Gutachten im Auftrag des Sächsischen Staatsministeriums der Finanzen," ifo Dresden Studien, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, number 57, October.
  9. Poot, Jacques, 1999. "A meta-analytic study of the role of government in long-run economic growth," ERSA conference papers ersa99pa171, European Regional Science Association.
  10. Campos, Nauro F & Coricelli, Fabrizio, 2002. "Growth in Transition: What we Know, What we Don't and What we Should," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3246, C.E.P.R. Discussion Papers.
  11. Swaroop, Vinaya & DEC, 1994. "The public finance of infrastructure : issues and options," Policy Research Working Paper Series, The World Bank 1288, The World Bank.
  12. W. Robert Reed & Nurul Sidek, 2013. "A Replication of "Meta-Analysis of the Effect of Fiscal Policies on Long-Run Growth" (European Journal of Political Economy, 2004)," Working Papers in Economics, University of Canterbury, Department of Economics and Finance 13/33, University of Canterbury, Department of Economics and Finance.
  13. Fan, Shenggen & Chan-Kang, Connie, 2004. "Road development, economic growth, and poverty reduction in China," DSGD discussion papers, International Food Policy Research Institute (IFPRI) 12, International Food Policy Research Institute (IFPRI).
  14. Rao, M. Govinda, 1998. "Accommodating public expenditure policies: the case of fast growing Asian economies," World Development, Elsevier, Elsevier, vol. 26(4), pages 673-694, April.
  15. Celal Kucuker, 2003. "Türkiye Ýktisat Kongresi Büyüme Stratejileri Çalýþma Grubu," Working Papers, Turkish Economic Association 2003/5, Turkish Economic Association.
  16. 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, The World Bank 1660, The World Bank.
  17. World Bank, 2003. "Argentina : Reforming Policies and Institutions for Efficiency and Equity of Public Expenditures," World Bank Other Operational Studies 14637, The World Bank.
  18. Ahmed, Sadiq, 1994. "Explaining Pakistan's high growth performance over the past two decades : can it be sustained ?," Policy Research Working Paper Series, The World Bank 1341, The World Bank.
  19. repec:dgr:uvatin:2002028 is not listed on IDEAS

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