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Does Public Investment Enhance Labor Productivity Growth in Argentina? A Cointegration Analysis

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  • Ramirez, Miguel D.

    (Trinity College, Hartford)

Abstract

This paper addresses the important question of whether public investment spending on economic infrastructure enhances economic growth and labor productivity in Argentina. Following the lead of the endogenous growth literature, it presents a simple modified production function that explicitly includes the positive or negative externality effects generated by public investment. Using cointegration analysis, the paper estimates a dynamic labor productivity function for the 1960-2005 period that incorporates the impact of public and private investment spending and the labor force (rather than the rate of population growth). The results suggest that (lagged) increases in public investment spending on economic infrastructure--as opposed to overall public investment spending--have a positive and significant effect on the rate of labor productivity growth. In addition, the model is estimated for a shorter period (1970-2005) to capture the impact of foreign direct investment. The estimates suggest that foreign direct investment spending has a lagged positive and significant impact on labor productivity growth, while increases in the labor force have a negative effect. Thus, the findings call into question the politically expedient policy in many Latin American countries, including Argentina during the 1990s, of disproportionately reducing public capital expenditures to meet reductions in the fiscal deficit as a proportion of GDP.

Suggested Citation

  • Ramirez, Miguel D., 2009. "Does Public Investment Enhance Labor Productivity Growth in Argentina? A Cointegration Analysis," Working Papers 57, Yale University, Department of Economics.
  • Handle: RePEc:ecl:yaleco:57
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    File URL: http://economics.yale.edu/sites/default/files/files/Working-Papers/wp000/ddp0057.pdf
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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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