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Is infrastructure capital productive? A dynamic heterogeneous approach

  • César Calderón


    (The World Bank)

  • Enrique Moral-Benito


    (Banco de España)

  • Luis Servén


    (The World Bank)

This paper offers an evaluation of the output contribution of infrastructure. Drawing from a large data set of infrastructure stocks covering 88 countries and spanning the years 1960-2000, and using a panel time-series approach, the paper estimates a long-run aggregate production function relating GDP to human capital, physical capital, and a synthetic measure of infrastructure given by the first principal component of infrastructure endowments in transport, power and telecommunications. Tests of the cointegration rank allowing it to vary across countries reveal a common rank with a single cointegrating vector, which we interpret as the long-run production function. Estimation of its parameters is performed using the pooled mean group (PMG) estimator, which allows for unrestricted short-run parameter heterogeneity across countries while imposing the (testable) restriction of long-run parameter homogeneity. The long-run elasticity of output with respect to the synthetic infrastructure index ranges between 0.07 and 0.10. The estimates are highly significant, both statistically and economically, and robust to alternative dynamic specifications and infrastructure measures. There is little evidence of long-run parameter heterogeneity across countries, whether heterogeneity is unconditional, or conditional on their level of development, population size, or infrastructure endowments.

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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1103.

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Length: 34 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:bde:wpaper:1103
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  16. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
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