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Regional productivity variation and the impact of public capital stock: an analysis with spatial interaction, with reference to Spain

  • Bernard Fingleton


    (Department of Economics, University of Strathclyde)

  • Miguel Gómez-Antonio


    (Department of Public Finance and Fiscal System,Universidad Complutense de Madrid)

In this paper we examine whether variations in the level of public capital across Spain?s Provinces affected productivity levels over the period 1996-2005. The analysis is motivated by contemporary urban economics theory, involving a production function for the competitive sector of the economy („industry?) which includes the level of composite services derived from 'service' firms under monopolistic competition. The outcome is potentially increasing returns to scale resulting from pecuniary externalities deriving from internal increasing returns in the monopolistic competition sector. We extend the production function by also making (log) labour efficiency a function of (log) total public capital stock and (log) human capital stock, leading to a simple and empirically tractable reduced form linking productivity level to density of employment, human capital and public capital stock. The model is further extended to include technological externalities or spillovers across provinces. Using panel data methodology, we find significant elasticities for total capital stock and for human capital stock, and a significant impact for employment density. The finding that the effect of public capital is significantly different from zero, indicating that it has a direct effect even after controlling for employment density, is contrary to some of the earlier research findings which leave the question of the impact of public capital unresolved.

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Paper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 1102.

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Length: 43 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:str:wpaper:1102
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  1. Emanuela Marrocu & Raffaele Paci, 2010. "The effects of public capital on the productivity of the Italian regions," Applied Economics, Taylor & Francis Journals, vol. 42(8), pages 989-1002.
  2. Gómez-Antonioa, Miguel & Fingleton, Bernard, 2009. "Analysing the impact of public capital stock using the NEG wage equation: a panel data approach," SIRE Discussion Papers 2009-29, Scottish Institute for Research in Economics (SIRE).
  3. Douglas Holtz-Eakin & Mary E. Lovely, 1995. "Scale Economies, Returns to Variety, and the Productivity of Public Infrastructure," NBER Working Papers 5295, National Bureau of Economic Research, Inc.
  4. Mark E Schaffer, 2005. "XTIVREG2: Stata module to perform extended IV/2SLS, GMM and AC/HAC, LIML and k-class regression for panel data models," Statistical Software Components S456501, Boston College Department of Economics, revised 22 Feb 2015.
  5. Bajo-Rubio, Oscar & Sosvilla-Rivero, Simon, 1993. "Does public capital affect private sector performance? : An analysis of the Spanish case, 1964-1988," Economic Modelling, Elsevier, vol. 10(3), pages 179-185, July.
  6. Otto, Glenn & Voss, Graham M, 1994. "Public Capital and Private Sector Productivity," The Economic Record, The Economic Society of Australia, vol. 70(209), pages 121-32, June.
  7. Angel de la Fuente, 2008. "Inversión en infraestructuras, crecimiento y convergencia regional," Economic Reports 20-08, FEDEA.
  8. Rivera-Batiz, Francisco L., 1988. "Increasing returns, monopolistic competition, and agglomeration economies in consumption and production," Regional Science and Urban Economics, Elsevier, vol. 18(1), pages 125-153, February.
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