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Political Economy of Infrastructure Investment Allocation: Evidence from a Panel of Large German Cities

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  • Achim Kemmerling
  • Andreas Stephan

Abstract

This paper proposes a simultaneous-equation approach to the estimation of the contribution of infrastructure accumulation to private production. A political-economy model for the allocation of public infrastructure investment grants is formulated. Our empirical findings, using a panel of large German cities for the years 1980, 1986, and 1988, suggest that cities ruled by a council sharing the State (‘Bundesland’) government's current political affiliation were particularly successful in attracting infrastructure investment grants. With regard to the contribution of infrastructure accumulation to growth, we find that public capital is a significant factor for private production. Moreover, at least for the sample studied, we find that simultaneity between output and public capital is weak; thus, feedback effects from output to infrastructure are negligible. ZUSAMMENFASSUNG - (Politische Ökonomie der Allokation von Infrastrukturinvestitionen: Empirische Evidenz von einem Paneldatensatz großer deutscher Städte) Dieses Papier verwendet ein simultanes Gleichungssystem zur Schätzung des Beitrags von Infrastrukturinvestitionen zu regionalem Wachstum. Ein polit-ökonomisches Modell der Allokation von Finanzzuweisungen für öffentliche Investitionen in Infrastruktur wird formuliert. Unsere empirischen Ergebnisse basierend auf einem Paneldatensatz für große deutsche Städte in den Jahren 1980, 1986 und 1988 deuten darauf hin, dass Städte, deren Mehrheit im Stadtrat die selbe politische "Couleur" wie die Landesregierung hatte, erfolgreicher bei der Zuteilung von Finanzzuweisungen waren. Im Hinblick auf den Beitrag der Infrastrukturakkumulation auf das Wachstum finden wir, dass öffentliches Kapital ein wichtiger Faktor für die private Produktion ist. Weiterhin, zumindest für den untersuchten Zeitraum, finden wir, dass die Simultanität zwischen Output und öffentlichem Kapital gering ist; daher sind Feedback-Effekte von Output zur Infrastruktur vernachlässigbar.

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Bibliographic Info

Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 00-03.

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Length: 38 pages
Date of creation: Feb 2000
Date of revision:
Publication status: Published as a revised version with the title "The Contribution of Local Public Infrastructure to Private Productivity and Its Political Economy: Evidence from a Panel of Large German Cities" in Public Choice , Vol. 113(3-4), December 2002,pp. 403-424.
Handle: RePEc:wzb:wzebiv:fsiv00-03

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  1. Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September.
  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. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  4. John A. Tatom, 1991. "Public capital and private sector performance," Review, Federal Reserve Bank of St. Louis, issue May, pages 3-15.
  5. David Alan Aschauer, 1990. "Why is infrastructure important?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 34, pages 21-68.
  6. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  7. John A. Tatom, 1993. "Is an infrastructure crisis lowering the nation's productivity?," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 3-21.
  8. Bernheim, B Douglas & Whinston, Michael D, 1986. "Common Agency," Econometrica, Econometric Society, vol. 54(4), pages 923-42, July.
  9. Ai, Chunrong & Cassou, Steven P., 1997. "On public capital analysis with state data," Economics Letters, Elsevier, vol. 57(2), pages 209-212, December.
  10. David Alan Aschauer, 1988. "Government spending and the "falling rate of profit."," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 11-17.
  11. Alicia H. Munnell, 1992. "Policy Watch: Infrastructure Investment and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 189-198, Fall.
  12. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  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. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
  15. Cadot, Olivier & Röller, Lars-Hendrik & Stephan, Andreas, 1999. "A Political Economy Model of Infrastructure Allocation: An Empirical Assessment," CEPR Discussion Papers 2336, C.E.P.R. Discussion Papers.
  16. 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.
  17. Hulten, Charles R. & Schwab, Robert M., 1997. "A fiscal federalism approach to infrastructure policy," Regional Science and Urban Economics, Elsevier, vol. 27(2), pages 139-159, April.
  18. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  19. Seitz, Helmut, 1995. "The Productivity and Supply of Urban Infrastructures," The Annals of Regional Science, Springer, vol. 29(2), pages 121-41, May.
  20. 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.
  21. Seitz, Helmut, 1994. "Public capital and the demand for private inputs," Journal of Public Economics, Elsevier, vol. 54(2), pages 287-307, June.
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