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The Productivity of Public Capital: Evidence from the 1994 Electoral Reform of Japan


  • Daiji Kawaguchi
  • Fumio Ohtake
  • Keiko Tamada


This paper attempts to estimate the causal effect of public capital stock on production using Japanese prefectural data. We first articulate the difficulty of consistently estimating the regional-level production function with public capital due to the endogeneity of the public capital stock amount. As the central government allocates most of the public capital across regions in Japan, the stock amount of public capital could be endogenous because it could be allocated to either booming regions to support private activity or to stagnating regions to help them become more productive. The endogeneity of public capital is more serious when local governments make decisions regarding public capital investments, as in the US, because such decisions are directly affected by local governments' budgetary constraints. We need an exogenous variation of public capital investment across regions in order to estimate the causal effect of public capital on production. Japan's electoral reform in 1994 offers an exogenous variation of this sort. The reform drastically changed the distribution of political representation in the Lower House across regions, and it accordingly changed the allocation of public capital across regions as well. The productivity of public capital based on this natural experimental identification strategy indicates higher productivity due to public capital than indicated by the OLS estimation.

Suggested Citation

  • Daiji Kawaguchi & Fumio Ohtake & Keiko Tamada, 2005. "The Productivity of Public Capital: Evidence from the 1994 Electoral Reform of Japan," ISER Discussion Paper 0627, Institute of Social and Economic Research, Osaka University.
  • Handle: RePEc:dpr:wpaper:0627

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    References listed on IDEAS

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    Cited by:

    1. Valter Di Giacinto & Giacinto Micucci & Pasqualino Montanaro, 2012. "The Macroeconomic Impact of Infrastructures: A Literature Review and Empirical Analysis on the Case of Italy," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 1, March.
    2. Pedro R.D. Bom & Jenny E. Ligthart, 2009. "How Productive is Public Capital? A Meta-Regression Analysis," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0912, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Víctor Adame & Javier Alonso & Luisa Pérez & David Tuesta, 2017. "Infrastructure & economic growth from a meta-analysis approach: do all roads lead to Rome?," Working Papers 17/07, BBVA Bank, Economic Research Department.

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