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Is Public Investment Productive in the Argentine Case? A Single Break Unit Root and Cointegration Analysis, 1960-2007

Author

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  • Miguel Ramirez

    () (Department of Economics, Trinity College)

Abstract

This paper addresses the important question of whether public investment spending on economic infrastructure enhances economic growth and labor productivity in Argentina. Following the lead of the endogenous growth literature, it presents a simple modified production function that explicitly includes the positive or negative externality effects generated by public investment. The paper estimates a dynamic labor productivity function for the 1960-2007 period that incorporates the impact of public and private investment spending and the labor force (rather than the rate of population growth). Single break (Zivot-Andrews) unit root and cointegration analysis suggest that (lagged) increases in public investment spending on economic infrastructureBas opposed to overall public investment spendingB have a positive and significant effect on the rate of labor productivity growth. In addition, the model is estimated for a shorter period (1970-2007) to capture the impact of foreign direct investment. The estimates suggest that foreign direct investment spending has a lagged positive and significant impact on labor productivity growth, while increases in the labor force have a negative effect . Thus, the findings call into question the politically expedient policy in many Latin American countries, including Argentina during the 1990s and early 2000s, of disproportionately reducing public capital expenditures to meet reductions in the fiscal deficit as a proportion of GDP.

Suggested Citation

  • Miguel Ramirez, 2011. "Is Public Investment Productive in the Argentine Case? A Single Break Unit Root and Cointegration Analysis, 1960-2007," Working Papers 1101, Trinity College, Department of Economics.
  • Handle: RePEc:tri:wpaper:1101
    as

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    File URL: http://internet2.trincoll.edu/repec/WorkingPapers2011/wp11-01.pdf
    File Function: First version, 2011
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    References listed on IDEAS

    as
    1. Pastor, Manuel Jr., 1989. "Current account deficits and debt accumulation in Latin America: Debate and evidence," Journal of Development Economics, Elsevier, vol. 31(1), pages 77-97, July.
    2. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
    3. Ramirez, Miguel D., 1998. "Does public investment enhance labor productivity growth in Chile? A cointegration analysis," The North American Journal of Economics and Finance, Elsevier, vol. 9(1), pages 45-65.
    4. J. M. Albala-Bertrand & E. C. Mamatzakis, 2001. "Is public infrastructure productive? Evidence from Chile," Applied Economics Letters, Taylor & Francis Journals, vol. 8(3), pages 195-198.
    5. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Public investment; labor productivity; Argentina; single-break unit root; cointegration;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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