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Analysing the Impact of Public Capital Stock Using the NEG Wage Equation: A Panel Data Approach

  • Bernard Fingleton
  • Miguel Gómez-Antonio

This paper examines the relationship between the level of public infrastructure and the level of productivity using panel data for the Spanish provinces over the period 1984-2004, a period which is particularly relevant due to the substantial changes occurring in the Spanish economy at that time. The underlying model used for the data analysis is based on the wage equation, which is one of a handful of simultaneous equations which when satisfied correspond to the short-run equilibrium of New Economic Geography theory. This is estimated using a spatial panel model with fixed time and province effects, so that unmodelled space and time constant sources of heterogeneity are eliminated. The model assumes that productivity depends on the level of educational attainment and the public capital stock endowment of each province. The results show that although changes in productivity are positively associated with changes in public investment within the same province, there is a negative relationship between productivity changes and changes in public investment in other regions.

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Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0024.

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Date of creation: Jun 2009
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Handle: RePEc:cep:sercdp:0024
Contact details of provider: Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

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