Optimal endowments of public investment: an empirical analysis for the Spanish regions
Following Aschauer's (1989) influential contribution, the role of public investment has been stressed as a crucial factor leading to higher private capital productivity, which would lead in turn to higher growth rates. According to this author, the decline in productivity growth experienced by the US economy during the seventies, would explained to a great extent by the decrease in the provision of public infrastructures during that period. In this way, the next years have witnessed the appearance of a great amount of empirical literature that analysed the impact of public investment on economic growth. Although the first empirical studies made use of aggregate time series for countries, this approach has been also extended to a regional framework using panel data, obtaining results that were quantitatively lower than those found with aggregate data. The reason would be the spillover effects related to the regional endowments of public capital, whose effect would extend not only the own region, but also to the neighbouring regions. In any case, public infrastructure seems to play an important role in the growth process of regions that should not be neglected. On the other hand, the issue of the optimal endowments of public infrastructure has been hardly discussed. In a recent paper, Karras (1997) has developed a simple condition to assess whether public capital is optimally provided, namely, whether the marginal productivities of both private and public capital are equal or not. By estimating a simple growth equation for fifteen European countries during the period 1960-1992, he is unable to reject the null hypothesis that the marginal productivities of private and public capital are equal, so that government investment would be neither underprovided nor overprovided in the fifteen countries of his sample. In this paper we try to address this issue (i.e., whether the endowments of public investment are optimal or not) in a regional framework, using Spanish data for the period 1967-91. Unlike Karras (1997), who assumes that the production function exhibits constant returns to scale in all factors, we are able to generalise his condition without the need of this constraint. On the other hand, the Spanish economy can provide an interesting case of study, since it has experienced a sustained period of growth in the last forty years, which has been accompanied by a strong process of structural change. In particular, the establishment of new regional governments after the restoration of democracy in 1977, coupled with the strong increase experienced by public investment since them, are all of them elements that can justify the interest of the Spanish case for the objectives of this paper. Therefore, in this paper we will first derive the theoretical condition under which public capital would be optimally provided, and then we will provide an empirical application of the model, for the case of the Spanish regions during the period 1965-1995.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- de la Fuente, Angel, 2002.
"On the sources of convergence: A close look at the Spanish regions,"
European Economic Review,
Elsevier, vol. 46(3), pages 569-599, March.
- Angel de la Fuente & Vicente Salas Fum·s, "undated". "On the sources of convergence: A close look at the Spanish regions," Studies on the Spanish Economy 01, FEDEA.
- de la Fuente, A, 1996. "On the Sources of Convergence : A Close Look at the Spanish Regions," UFAE and IAE Working Papers 362.96, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- de la Fuente, Angel, 1996. "On the Sources of Convergence: A Close Look at the Spanish Regions," CEPR Discussion Papers 1543, C.E.P.R. Discussion Papers.
- Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
- David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
- Harris, Richard D. F. & Tzavalis, Elias, 1999. "Inference for unit roots in dynamic panels where the time dimension is fixed," Journal of Econometrics, Elsevier, vol. 91(2), pages 201-226, August.
- Tom Doan, "undated". "HTUNIT: RATS procedure to implement Harris-Tzavalis unit root test for panel data," Statistical Software Components RTS00092, Boston College Department of Economics.
- de la Fuente, Angel, 2002. "Is the Allocation of Public Capital Across the Spanish Regions too Redistributive?," CEPR Discussion Papers 3138, C.E.P.R. Discussion Papers.
- Karras, Georgios, 1997. "Is Government Investment Underprovided in Europe? Evidence from a Panel of Fifteen Countries," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 50(2), pages 223-235.
- Jan-Egbert Sturm & Gerard H. Kuper & Jakob de Haan, 1996. "Modelling government investment and economic growth at the macro level: A review," Working Papers 29, Centre for Economic Research, University of Groningen and University of Twente.
- 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 151-168, Supplemen.
- Carmela Martin & Francisco J. Velazquez., 2001. "An Assessment of Real Convergence of Less Developed EU Members: Lessons for the CEEC Candidates," European Economy Group Working Papers 5, European Economy Group.
- Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
- Óscar Bajo Rubio & Carmen Díaz Roldán & M.a Dolores Montávez Garcés, "undated". "Fiscal Policy And Growth Revisited: The Case Of The Spanish Regions," Working Papers 19-02 Classification-JEL , Instituto de Estudios Fiscales.
- Bajo-Rubio, Oscar & Diaz-Roldan, Carmen & Montavez-Garces, M. Dolores, 1999. "Fiscal Policy and Growth Revisited: An Application to the Case of the Spanish Regions," ERSA conference papers ersa99pa141, European Regional Science Association.
- Oscar Bajo & Carmen DÌaz Rold·n & Maria Dolores Montavez, 1999. "Fiscal Policy and Growth Revisited: The Case of The Spanish Regions," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 9904, Departamento de Economía - Universidad Pública de Navarra.
- Matilde Mas & Joaquin Maudos & Francisco Perez & Ezequiel Uriel, 1996. "Infrastructures and Productivity in the Spanish Regions," Regional Studies, Taylor & Francis Journals, vol. 30(7), pages 641-649.
- Ezequiel Uriel Jiménez & Francisco Pérez García & Matilde Mas Ivars & Joaquín Maudos Villarroya, 1995. "Infrastructures And Productivity In The Spanish Regions," Working Papers. Serie EC 1995-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Banerjee, Anindya, 1999. " Panel Data Unit Roots and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 607-629, Special I.
- Berndt, Ernst & Hansson, Bengt, 1992. "Measuring the Contribution of Capital in Sweden," Working Paper Series 365, Research Institute of Industrial Economics.
- Juan R. Cuadrado-Roura & BegoÃ±a GarcÃa-Greciano & JosÃ© Luis Raymond, 1999. "Regional Convergence in Productivity and Productive Structure: The Spanish Case," International Regional Science Review, , vol. 22(1), pages 35-53, April. Full references (including those not matched with items on IDEAS)