Public capital and private sector productivity - a Finnish perspective
This paper focuses on the impact of the public sector capital on private sector productivity in Finland. The majority of previous contributions support the public capital hypothesis, i.e. that public capital plays an important role in enhancing private sector productivity. However, the contribution of Tatom (1991a) sheds new light on this issue. He shows that by correcting the previously used models of some of their most serious deficiencies, the impact of public capital is no longer significant for private sector productivity. We have applied Tatom’s approach to Finnish data, and our results are similar to his findings. However, our results concerning the precedence between public capital and private sector output provide some evidence of causation running from public capital to private sector output, i.e. our results indicate that, if correctly targeted, public capital investment could affect private sector performance.
Volume (Year): 13 (2000)
Issue (Month): 1 (Spring)
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