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Do States Optimize?: Public Capital and Economic Growth

  • David Alan Aschauer

This paper develops a non-linear theoretical relationship between public capital and economic growth in order to obtain estimates of the growth-maximizing ratio of public capital to private capital. The model is empirically implemented using data on the 48 contiguous U.S. states over the period 1970 to 1990. The empirical results provide evidence that (i) the relationship between public capital and economic growth is non-linear, (ii) the growth-maximizing public capital stock is approximately 60% to 80% as large as the private (tangible) capital stock, and (iii) permanent changes in public capital are associated with permanent changes in economic growth.

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File URL: http://www.levyinstitute.org/pubs/wp189.pdf
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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_189.

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Date of creation: Apr 1997
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Handle: RePEc:lev:wrkpap:wp_189
Contact details of provider: Web page: http://www.levyinstitute.org

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  1. Alicia H. Munnell & Leah M. Cook, 1990. "How does public infrastructure affect regional economic performance?," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 11-33.
  2. Evans, Paul & Karras, Georgios, 1994. "Are Government Activities Productive? Evidence from a Panel of U.S. States," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 1-11, February.
  3. Alicia H. Munnell, 1990. "Why has productivity growth declined? Productivity and public investment," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-22.
  4. Randall W. Eberts, 1986. "Estimating the contribution of urban public infrastructure to regional growth," Working Paper 8610, Federal Reserve Bank of Cleveland.
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