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Productivity of public spending, sectoral allocation choices, and economic growth

  • Baffes, John
  • Shah, Anwar

The authors examine the composition of public spending and its implications for economic growth. They use a translog production function by treating gross domestic product as the output and labor, private capital, and several types of public sector capital stocks as the inputs, using time series data for 25 countries for 1965-84. The production functions of all but four countries exhibited increasing returns to scale. The highest output elasticity was for human resource development capital, followed by private capital and labor. Output elasticity of infrastructure capital was found to be relatively small, with the exception of Latin American countries where it exhibited relatively high values. Military capital had negative output elasticity in slightly more than half of the cases considered. The results suggest that reshaping public spending priorities in favor of human resource development and away from military spending would positively stimulate world economic renewal.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1178.

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Date of creation: 30 Sep 1993
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Handle: RePEc:wbk:wbrwps:1178
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  1. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
  2. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  3. Antle, John M, 1983. "Infrastructure and Aggregate Agricultural Productivity: International Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 31(3), pages 609-19, April.
  4. Berndt, Ernst R & Hansson, Bengt, 1992. " Measuring the Contribution of Public Infrastructure Capital in Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages S151-68, Supplemen.
  5. Shah, Anwar, 1988. "Public infrastructure and private sector profitability and productivity in Mexico," Policy Research Working Paper Series 100, The World Bank.
  6. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-26, October.
  7. 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.
  8. Gordon R. Richards, 1992. "Endogenous Technological Advance and Postwar Economic Growth: A Production Function Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 18(3), pages 315-331, Summer.
  9. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  10. Berndt, Ernst & Hansson, Bengt, 1992. "Measuring the Contribution of Capital in Sweden," Working Paper Series 365, Research Institute of Industrial Economics.
  11. McElroy, F W, 1969. "Returns to Scale, Euler's Theorem, and the Form of Production Functions," Econometrica, Econometric Society, vol. 37(2), pages 275-79, April.
  12. Lynde, Catherine & Richmond, J, 1993. "Public Capital and Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 401-14, May.
  13. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
  14. Shah, Anwar, 1992. "Dynamics of Public Infrastructure, Industrial Productivity and Profitability," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 28-36, February.
  15. Landau, Daniel, 1993. "The economic impact of military expenditures," Policy Research Working Paper Series 1138, The World Bank.
  16. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-80, September.
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