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Optimal endowments of public investment: an empirical analysis for the Spanish regions


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  • Bajo-Rubio, Oscar


  • Diaz-Roldan, Carmen


  • Montavez-Garces, M. Dolores



Following Aschauer's (1989) influential contribution, the role of public investment has been stressed as a crucial factor leading to higher private capital productivity, which would lead in turn to higher growth rates. According to this author, the decline in productivity growth experienced by the US economy during the seventies, would explained to a great extent by the decrease in the provision of public infrastructures during that period. In this way, the next years have witnessed the appearance of a great amount of empirical literature that analysed the impact of public investment on economic growth. Although the first empirical studies made use of aggregate time series for countries, this approach has been also extended to a regional framework using panel data, obtaining results that were quantitatively lower than those found with aggregate data. The reason would be the spillover effects related to the regional endowments of public capital, whose effect would extend not only the own region, but also to the neighbouring regions. In any case, public infrastructure seems to play an important role in the growth process of regions that should not be neglected. On the other hand, the issue of the optimal endowments of public infrastructure has been hardly discussed. In a recent paper, Karras (1997) has developed a simple condition to assess whether public capital is optimally provided, namely, whether the marginal productivities of both private and public capital are equal or not. By estimating a simple growth equation for fifteen European countries during the period 1960-1992, he is unable to reject the null hypothesis that the marginal productivities of private and public capital are equal, so that government investment would be neither underprovided nor overprovided in the fifteen countries of his sample. In this paper we try to address this issue (i.e., whether the endowments of public investment are optimal or not) in a regional framework, using Spanish data for the period 1967-91. Unlike Karras (1997), who assumes that the production function exhibits constant returns to scale in all factors, we are able to generalise his condition without the need of this constraint. On the other hand, the Spanish economy can provide an interesting case of study, since it has experienced a sustained period of growth in the last forty years, which has been accompanied by a strong process of structural change. In particular, the establishment of new regional governments after the restoration of democracy in 1977, coupled with the strong increase experienced by public investment since them, are all of them elements that can justify the interest of the Spanish case for the objectives of this paper. Therefore, in this paper we will first derive the theoretical condition under which public capital would be optimally provided, and then we will provide an empirical application of the model, for the case of the Spanish regions during the period 1965-1995.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa02p214.

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Date of creation: Aug 2002
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Handle: RePEc:wiw:wiwrsa:ersa02p214

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  1. Holtz-Eakin, Douglas, 1994. "Public-Sector Capital and the Productivity Puzzle," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 12-21, February.
  2. Oscar Bajo & Carmen DÌaz Rold·n & Maria Dolores Montavez, 1999. "Fiscal Policy and Growth Revisited: The Case of The Spanish Regions," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra, Departamento de Economía - Universidad Pública de Navarra 9904, Departamento de Economía - Universidad Pública de Navarra.
  3. de la Fuente, Angel, 1996. "On the Sources of Convergence: A Close Look at the Spanish Regions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1543, C.E.P.R. Discussion Papers.
  4. Ezequiel Uriel Jiménez & Francisco Pérez García & Matilde Mas Ivars & Joaquín Maudos Villarroya, 1995. "Infrastructures And Productivity In The Spanish Regions," Working Papers. Serie EC, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 1995-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 90(1), pages 1-44, May.
  6. Carmela Martin & Francisco J. Velazquez., 2001. "An Assessment of Real Convergence of Less Developed EU Members: Lessons for the CEEC Candidates," European Economy Group Working Papers, European Economy Group 5, European Economy Group.
  7. de la Fuente, Angel, 2002. "Is the Allocation of Public Capital Across the Spanish Regions too Redistributive?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3138, C.E.P.R. Discussion Papers.
  8. 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.
  9. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(2), pages 177-200, March.
  10. Jan-Egbert Sturm & Gerard H. Kuper & Jakob de Haan,, 1996. "Modelling government investment and economic growth at the macro level: A review," Working Papers, Centre for Economic Research, University of Groningen and University of Twente 29, Centre for Economic Research, University of Groningen and University of Twente.
  11. Banerjee, Anindya, 1999. " Panel Data Unit Roots and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 61(0), pages 607-29, Special I.
  12. Harris, Richard D. F. & Tzavalis, Elias, 1999. "Inference for unit roots in dynamic panels where the time dimension is fixed," Journal of Econometrics, Elsevier, Elsevier, vol. 91(2), pages 201-226, August.
  13. 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.
  14. Karras, Georgios, 1997. "Is Government Investment Underprovided in Europe? Evidence from a Panel of Fifteen Countries," Economia Internazionale / International Economics, Camera di Commercio di Genova, Camera di Commercio di Genova, vol. 50(2), pages 223-235.
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Cited by:
  1. Boopen Seetanah, 2011. "Optimal endowments of transport investment: an empirical analysis for mauritius," Empirical Economics, Springer, Springer, vol. 40(3), pages 827-838, May.
  2. Antonio Morales & Pablo Brañas Garza, 2003. "Computational Errors in Guessing Games1," Economic Working Papers at Centro de Estudios Andaluces, Centro de Estudios Andaluces E2003/11, Centro de Estudios Andaluces.
  3. Jaime Alonso & María Jesús Freire-Serén & Baltasar Manzano, 2004. "Rentabilidad social de la inversión pública española en infraestructuras," Working Papers, Institut d'Economia de Barcelona (IEB) 2004/8, Institut d'Economia de Barcelona (IEB).
  4. Johannes Fedderke & Željko Bogetic, 2005. "Infrastructure and Growth in South Africa: Direct and Indirect Productivity Impacts of 19 Infrastructure Measures," Working Papers, Economic Research Southern Africa 39, Economic Research Southern Africa.
  5. Oscar Bajo-Rubio & Carmen Díaz-Mora & Carmen Díaz-Roldán, 2007. "Foreign direct investment and regional growth: An analysis of the Spanish case," Working Papers, Asociación Española de Economía y Finanzas Internacionales 07-08, Asociación Española de Economía y Finanzas Internacionales.
  6. Carmen Díaz Roldán & Diego Martínez-López, 2005. "Inversión pública y crecimiento económico. Una revisión crítica con propuesta de futuro," Economic Working Papers at Centro de Estudios Andaluces, Centro de Estudios Andaluces E2005/10, Centro de Estudios Andaluces.
  7. Miguel Márquez & Julián Ramajo & Geoffrey Hewings, 2010. "A spatio-temporal econometric model of regional growth in Spain," Journal of Geographical Systems, Springer, Springer, vol. 12(2), pages 207-226, June.


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