The Simultaneity Problems in the Estimation of Production Effect of Public Capital:A Review of the Japanese Studies(in Japanese)

This paper surveys the growing empirical literature on the production effects of public capital in Japan. Our survey is rather methodological, and focuses on the issue of simultaneity of public capital, or 'reverse causation' from output to public capital. Our purpose is to highlight how the issue is conceived and tackled in the existing literature, summarize what are important, and discuss what are more appropriate empirical procedures. Limiting our discussion to the estimation of aggregate production function, we review the relevant Japanese studies, focusing on the following analytical points: (1) endogeneity problem due to simultaneity and missing variables, (2) the timing of stock variables and its implication for simultaneity, (3) serial correlation and the endogeneity of stock variables, and (4) the simultaneity of labor and private capital utilization and its implication for the choice of instruments. As it turns out in the Japanese studies, the simultaneity of public capital is a cerebrated issue that very few understand properly.