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Public-Sector Capital and the Productivity Puzzle

  • Douglas Holtz-Eakin
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    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.

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    File URL: http://www.nber.org/papers/w4122.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4122.

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    Date of creation: Jul 1992
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    Publication status: published as Review of Economics and Statistics, Vol. 76, No. 1, 1994, pp. 12-21.
    Handle: RePEc:nbr:nberwo:4122
    Note: PE
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    1. David A. Aschauer, 1989. "Public investment and productivity growth in the Group of Seven," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 17-25.
    2. Hausman, Jerry A. & Taylor, William E., 1981. "Panel data and unobservable individual effects," Journal of Econometrics, Elsevier, vol. 16(1), pages 155-155, May.
    3. Randall W. Eberts, 1990. "Cross-sectional analysis of public infrastructure and regional productivity growth," Working Paper 9004, Federal Reserve Bank of Cleveland.
    4. Alicia H. Munnell, 1990. "How does public infrastructure affect regional economic performance?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 34, pages 69-112.
    5. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    6. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
    7. Randall W. Eberts, 1986. "Estimating the contribution of urban public infrastructure to regional growth," Working Paper 8610, Federal Reserve Bank of Cleveland.
    8. Kevin T. Duffy-Deno & Randall W. Eberts, 1989. "Public infrastructure and regional economic development: a simultaneous equations approach," Working Paper 8909, Federal Reserve Bank of Cleveland.
    9. 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.
    10. 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.
    11. Robert Eisner, 1991. "Infrastructure and regional economic performance: comment," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 47-58.
    12. Randall W. Eberts, 1990. "Public infrastructure and regional economic development," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 15-27.
    13. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
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