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Regional Infrastructure and Firm Investment. Theory and Empirical Evidence for Italy

  • Francesco Aiello

    ()

    (University of Calabria)

  • Alfonsina Iona

    (Aston University)

  • Leone Leonida

    ()

    (Queen Mary, University of London)

We model the channels through which public expenditure on infrastructure influences firm value and shapes its investment decisions via both adjustment costs and marginal profitability of capital. We test these hypotheses by using a large panel of Italian firms. Empirical results show that infrastructure interacts with revenues and costs in shaping firm's profitability of capital and influences its adjustment costs. Finally we find that infrastructure expenditure contributes to reduce the economic gap between the North and the South of Italy. These effects vary across regions and sectors.

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File URL: http://www.econ.qmul.ac.uk/papers/doc/wp639.pdf
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Paper provided by Queen Mary University of London, School of Economics and Finance in its series Working Papers with number 639.

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Date of creation: Mar 2009
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Handle: RePEc:qmw:qmwecw:wp639
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  1. David Aschauer, 1988. "Does public capital crowd out private capital?," Staff Memoranda 88-10, Federal Reserve Bank of Chicago.
  2. Habib Ahmed & Stephen M. Miller, 1999. "Crowding-Out and Crowding-In Effects of the Components of Government Expenditure," Working papers 1999-02, University of Connecticut, Department of Economics.
  3. Demetriades, Panicos O & Mamuneas, Theofanis P, 2000. "Intertemporal Output and Employment Effects of Public Infrastructure Capital: Evidence from 12 OECD Economics," Economic Journal, Royal Economic Society, vol. 110(465), pages 687-712, July.
  4. 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.
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  7. Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2006. "Uncertainty Determinants of Firm Investment," Boston College Working Papers in Economics 646, Boston College Department of Economics, revised 24 Feb 2007.
  8. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  9. Federico Bonaglia & Eliana La Ferrara & Massimiliano Marcellino, . "Public Capital and Economic Performance: Evidence from Italy," Working Papers 163, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  10. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November.
  11. Alfredo M. Pereira & Jorge M. Andraz, 2007. "Public Investment In Transportation Infrastructures And Industry Performance In Portugal," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 32(1), pages 1-20, June.
  12. Evans, Paul & Karras, Georgios, 1994. "Is government capital productive? Evidence from a panel of seven countries," Journal of Macroeconomics, Elsevier, vol. 16(2), pages 271-279.
  13. Ingrid Ott & Susanne Soretz, 2006. "Government expenditure, capital adjustment, and economic growth," Computing in Economics and Finance 2006 362, Society for Computational Economics.
  14. Alfredo M. Pereira, 2000. "Is All Public Capital Created Equal?," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 513-518, August.
  15. John A. Tatom, 1991. "Should government spending on capital goods be raised?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 3-15.
  16. Sergio Destefanis & Vania Sena, 2005. "Public capital and total factor productivity: New evidence from the Italian regions, 1970-98," Regional Studies, Taylor & Francis Journals, vol. 39(5), pages 603-617.
  17. Sean Cleary, 1999. "The Relationship between Firm Investment and Financial Status," Journal of Finance, American Finance Association, vol. 54(2), pages 673-692, 04.
  18. 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 351-59.
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