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Public Infrastructure and Economic Takeoff

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  • Prakash Chandra Sapkota

Abstract

The purpose of this paper is to incorporate the role of public infrastructure investment on economic takeoff process in underdeveloped and emerging economies in a dynamic general equilibrium model. We use a two-period overlapping generations model, and consider two types of technologies (traditional and modern) that are used to produce the final output of firms. This paper confirms that economic takeoff is possible only when the capital per labor unit exceeds a certain threshold level. Thus, the takeoff process depends on the productivity race between traditional and modern technologies with increasing public infrastructure investment, while public infrastructures foster the productivity of both technologies. Similarly, an effective tax rate supports the takeoff process by stimulating the wage rate which in turn increases the capital per labor along with the saving rates. Hence, we clarify the conditions required for succeeding in the takeoff of an economy. In addition, we review some empirical evidence related to the output elasticity of public infrastructures.

Suggested Citation

  • Prakash Chandra Sapkota, 2020. "Public Infrastructure and Economic Takeoff," Business and Economic Research, Macrothink Institute, vol. 10(1), pages 313-333, March.
  • Handle: RePEc:mth:ber888:v:10:y:2020:i:1:p:313-333
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    References listed on IDEAS

    as
    1. Chatterjee, Santanu & Turnovsky, Stephen J., 2012. "Infrastructure and inequality," European Economic Review, Elsevier, vol. 56(8), pages 1730-1745.
    2. Pakrashi, Debayan & Frijters, Paul, 2017. "Takeoffs, Landing, and Economic Growth," ADBI Working Papers 641, Asian Development Bank Institute.
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    More about this item

    Keywords

    Public infrastructure; Early-stage; Economic takeoff; Threshold; Effective tax rate;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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