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Public-Sector Capital and the Productivity Puzzle

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  • Douglas Holtz-Eakin

Abstract

A number of studies have suggested a quantitatively important relationship between public-sector capital accumulation and private sector productivity, with the most compelling evidence derived from analyses of state-level data. Estimates herein of production functions that use standard techniques to control for unobserved, state-specific characteristics, however, reveal essentially no role for public-sector capital in affecting private sector productivity. Only estimates of state production functions that do not include such controls find substantial productivity impacts. This result reconciles existing econometric estimates with the findings of Hulten and Schwab based on growth accounting techniques, as such techniques effectively control for state-specific effects. Region-level estimates are essentially identical to those from state data, suggesting no quantitatively important spillover effects across states.

Suggested Citation

  • Douglas Holtz-Eakin, 1992. "Public-Sector Capital and the Productivity Puzzle," NBER Working Papers 4122, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4122
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    References listed on IDEAS

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    1. Duffy-Deno, Kevin T. & Eberts, Randall W., 1991. "Public infrastructure and regional economic development: A simultaneous equations approach," Journal of Urban Economics, Elsevier, vol. 30(3), pages 329-343, November.
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    8. Garcia-Mila, Teresa & McGuire, Therese J., 1992. "The contribution of publicly provided inputs to states' economies," Regional Science and Urban Economics, Elsevier, vol. 22(2), pages 229-241, June.
    9. 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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    11. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    12. Randall W. Eberts, 1990. "Public infrastructure and regional economic development," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 15-27.
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