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Estimating the Productivity of Public Infrastructure using Maximum Entropy Econometrics

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  • Rodriguez-Vález, Jorge
  • Álvarez, Antonio
  • Arias, Carlos
  • Fernández, Esteban

Abstract

The empirical analysis of public infrastructure productivity has been limited by several econometric problems. These problems are probably the cause of the great variability in results reported in the literature. One of these econometric problems is the existence of multicollinearity when infrastructure is included as an input in a production function. In this paper, we propose to deal with multicollinearity by using prior information on parameter values. For this purpose, we explore the use of maximum entropy econometrics to estimate the parameters of a regional production function in Spain. Our results show that infrastructure plays an important role on production. This result is not affected by quite large changes on prior information on parameter values.

Suggested Citation

  • Rodriguez-Vález, Jorge & Álvarez, Antonio & Arias, Carlos & Fernández, Esteban, 2005. "Estimating the Productivity of Public Infrastructure using Maximum Entropy Econometrics," Efficiency Series Papers 2005/04, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
  • Handle: RePEc:oeg:wpaper:2005/04
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    References listed on IDEAS

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    5. Quirino Paris & Richard E. Howitt, 1998. "An Analysis of Ill-Posed Production Problems Using Maximum Entropy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 124-138.
    6. Holtz-Eakin, Douglas, 1994. "Public-Sector Capital and the Productivity Puzzle," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 12-21, February.
    7. 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.
    8. Wim P. M. Vijverberg & Chu-Ping C. Vijverberg & Janet L. Gamble, 1997. "Public Capital And Private Productivity," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 267-278, May.
    9. Garcia-Mila, Teresa & McGuire, Therese J & Porter, Robert H, 1996. "The Effect of Public Capital in State-Level Production Functions Reconsidered," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 177-180, February.
    10. Iain Fraser, 2000. "An application of maximum entropy estimation: the demand for meat in the United Kingdom," Applied Economics, Taylor & Francis Journals, vol. 32(1), pages 45-59.
    11. Baltagi, Badi H & Pinnoi, Nat, 1995. "Public Capital Stock and State Productivity Growth: Further Evidence from an Error Components Model," Empirical Economics, Springer, vol. 20(2), pages 351-359.
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