IDEAS home Printed from https://ideas.repec.org/p/mil/wpdepa/2012-08.html
   My bibliography  Save this paper

Public capital, private capital, and economic growth

Author

Listed:
  • Alberto BUCCI

Abstract

An endogenous growth model is presented in which productive government expenditure takes the form of a stock. Private and public capital interact with each other in two different ways. The first takes place in the final output sector and depends on the specification of the aggregate production function (Cobb-Douglas vs. CES). The second has to do with the rates of investment in the two types of capital and arises from the law of motion of public capital. The share of public capital devoted to output production can be exogenous or endogenous. Our results suggest that when this share is exogenous along the balanced growth path the optimal growth rate of the economy depends positively on the degree of complementarity between the investments in the two kinds of capital, irrespective of the form of the aggregate production function. This is also true when the share of public capital devoted to output production is endogenous, as long as the inverse of the intertemporal elasticity of substitution in consumption is sufficiently large. When the technology for final output production is CES and the social planner can choose the fraction of public capital to be devoted to goods-production, optimal growth crucially depends on the elasticity of substitution between the two forms of capital in the production of goods. We analyze the conditions for an increase in this elasticity to yield either a positive, or a negative, or else an ambiguous effect on the economy’s optimal growth rate. Unlike Barro (1990), the relationship between optimal growth and the share of productive government expenditure in GDP is nonlinear and characterized by threshold-effects.

Suggested Citation

  • Alberto BUCCI, 2012. "Public capital, private capital, and economic growth," Departmental Working Papers 2012-08, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2012-08
    as

    Download full text from publisher

    File URL: http://wp.demm.unimi.it/files/wp/2012/DEMM-2012_008wp.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Aiyar, Shekhar & Dalgaard, Carl-Johan, 2009. "Accounting for productivity: Is it OK to assume that the world is Cobb-Douglas?," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 290-303, June.
    2. Duggal, Vijaya G. & Saltzman, Cynthia & Klein, Lawrence R., 2007. "Infrastructure and productivity: An extension to private infrastructure and it productivity," Journal of Econometrics, Elsevier, vol. 140(2), pages 485-502, October.
    3. Attanasio, Orazio P & Browning, Martin, 1995. "Consumption over the Life Cycle and over the Business Cycle," American Economic Review, American Economic Association, vol. 85(5), pages 1118-1137, December.
    4. Guvenen, Fatih, 2006. "Reconciling conflicting evidence on the elasticity of intertemporal substitution: A macroeconomic perspective," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1451-1472, October.
    5. Kent Smetters, 2003. "The (Interesting) Dynamic Properties of the Neoclassical Growth Model with CES Production," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 697-707, July.
    6. Lutfi Erden & Randall G. Holcombe, 2005. "The Effects of Public Investment on Private Investment in Developing Economies," Public Finance Review, , vol. 33(5), pages 575-602, September.
    7. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-625, December.
    8. Carlo Favero, 2005. "Consumption, Wealth, the Elasticity of Intertemporal Substitution and Long-Run Stock Market Returns," Working Papers 291, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    9. Duffy, John & Papageorgiou, Chris, 2000. "A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alberto Bucci & Chiara Del Bo, 2012. "On the interaction between public and private capital in economic growth," Journal of Economics, Springer, vol. 106(2), pages 133-152, June.
    2. Masakatsu Okubo, 2011. "The Intertemporal Elasticity of Substitution: An Analysis Based on Japanese Data," Economica, London School of Economics and Political Science, vol. 78(310), pages 367-390, April.
    3. Chatterjee, Santanu & Turnovsky, Stephen J., 2007. "Foreign aid and economic growth: The role of flexible labor supply," Journal of Development Economics, Elsevier, vol. 84(1), pages 507-533, September.
    4. Santanu Chatterjee & Sugata Ghosh, 2011. "The dual nature of public goods and congestion: the role of fiscal policy revisited," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(4), pages 1471-1496, November.
    5. Chatterjee, Santanu & Mahbub Morshed, A.K.M., 2011. "Reprint to: Infrastructure provision and macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1405-1423, September.
    6. Julian Thimme, 2017. "Intertemporal Substitution In Consumption: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 226-257, February.
    7. Marcel Aloy & Gilles de Truchis, 2012. "Estimation and Testing for Fractional Cointegration," Working Papers halshs-00793206, HAL.
    8. Turnovsky, Stephen J., 2008. "The role of factor substitution in the theory of economic growth and income distribution: Two examples," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 604-629, June.
    9. Hendricks, Lutz, 2007. "How important is discount rate heterogeneity for wealth inequality?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 3042-3068, September.
    10. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
    11. Manopimoke, Pym, 2019. "The Output Euler Equation And Real Interest Rate Regimes," Macroeconomic Dynamics, Cambridge University Press, vol. 23(1), pages 420-447, January.
    12. Daniel Becker & Michael Rauscher, 2007. "Fiscal Competition in Space and Time: An Endogenous-Growth Approach," CESifo Working Paper Series 2048, CESifo.
    13. Strulik, Holger, 2012. "Poverty, voracity, and growth," Journal of Development Economics, Elsevier, vol. 97(2), pages 396-403.
    14. Chang, Yanqin, 2007. "high level of international risk sharing when the productivity growth contains long run risk," MPRA Paper 4476, University Library of Munich, Germany.
    15. M. Fatih Guvenen, 2003. "A Parsimonious Macroeconomic Model for Asset Pricing: Habit Formation or Cross-sectional Heterogeneity?," RCER Working Papers 499, University of Rochester - Center for Economic Research (RCER).
    16. Gã“Mez, Manuel A., 2008. "Dynamics Of The Saving Rate In The Neoclassical Growth Model With Ces Production," Macroeconomic Dynamics, Cambridge University Press, vol. 12(2), pages 195-210, April.
    17. Fatih Guvenen, 2007. "Do Stockholders Share Risk More Effectively than Nonstockholders?," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 275-288, May.
    18. Tomáš Havránek, 2015. "Measuring Intertemporal Substitution: The Importance Of Method Choices And Selective Reporting," Journal of the European Economic Association, European Economic Association, vol. 13(6), pages 1180-1204, December.
    19. Stephen J. Turnovsky & Santanu Chatterjee, 2004. "Tied Versus Untied Foreign Aid: Consequences for a Growing Economy," Computing in Economics and Finance 2004 8, Society for Computational Economics.
    20. Santanu Chatterjee & Olaf Posch & Dennis Wesselbaum, 2017. "Delays in Public Goods," Working Papers 1702, University of Otago, Department of Economics, revised Feb 2017.

    More about this item

    Keywords

    Economic Growth; Complementarity/Substitutability; Public Capital; Private Capital;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mil:wpdepa:2012-08. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/damilit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: DEMM Working Papers The email address of this maintainer does not seem to be valid anymore. Please ask DEMM Working Papers to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/damilit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.