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Public and Private Capital Productivity Puzzle: A Nonparametric Approach

Listed author(s):
  • Daniel J. Henderson


    (Department of Economics, State University of New York at Binghamton)

  • Subal C. Kumbhakar


    (Department of Economics, State University of New York at Binghamton, Binghamton)

Is public expenditure productive? Is there a shortfall or excess in public capital investment? We address these old issues in the light of new econometric tools. It is argued that the Cobb-Douglas specification that ignores nonlinearity inherent in the functional relationship of the production technology causes incorrect estimates of input elasticities. To avoid possible model misspecification, we use Li-Racine generalized kernel estimation. This procedure is used to estimate the returns to private capital, employment, and public capital in gross state product from a panel of 48 states for 17 years. In contrast to previous studies, we find that the return to public capital is positive and significantly different from zero.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 73 (2006)
Issue (Month): 1 (July)
Pages: 219-232

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Handle: RePEc:sej:ancoec:v:73:1:y:2006:p:219-232
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