The dual approach to the public capital hypothesis: the case of The Netherlands
This paper uses a flexible functional form approach to account for the direct and indirect effects of public capital on the private sector. Furthermore we explicitly incorporate energy in the production function. We use the duality between production and cost functions and base our investigation on the estimation of a translog cost function for five manufacturing sectors of the Dutch economy. Our primary objective is to see whether public capital affects the production cost and factor-demand equations of the private sector and estimate several public capital elasticities. Our preliminary results presented in this paper should be interpreted with great care. In the first place there is severe autocorrelation in the model which means that the model is not specified correctly. In the second place the second-order conditions for cost minimization are violated in a number of cases. The problem of autocorrelation is solved by introducing a dynamic version of the model without public capital. The conclusions from the dynamic model are twofold. Autocorrelation is reduced, but the first and second-order conditions for minimizing costs are violated. Our results indicate that assessing the importance of public capital using a flexible cost function approach is difficult. The results found in the literature are not unambiguous either. Furthermore, autocorrelation might possibly be solved by rewriting the model as a truly dynamic model. However, in order to model the adjustment process a proper identification of the optimal shares is needed. Our impression is that the cost function approach does not provide us with reliable estimates for the optimal shares.
|Date of creation:||Feb 1996|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 31 50 363 3749
Fax: 31 50 363 3720
Web page: http://www.rug.nl/research/som-ri/
More information through EDIRC
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.:
- Keeler, Theodore E. & Ying, John S., 1988. "Measuring the benefits of a large public investment : The case of the U.S. Federal-aid highway system," Journal of Public Economics, Elsevier, vol. 36(1), pages 69-85, June.
- 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.
- Aschauer, David Alan, 1989.
"Does public capital crowd out private capital?,"
Journal of Monetary Economics,
Elsevier, vol. 24(2), pages 171-188, September.
- M. Ishaq Nadiri & Theofanis P. Mamuneas, 1994. "Infrastructure and Public R&D Investments, and the Growth of Factor Productivity in US Manufacturing Industries," NBER Working Papers 4845, National Bureau of Economic Research, Inc.
- David Aschauer, 1988.
"Is public expenditure productive?,"
88-7, Federal Reserve Bank of Chicago.
- Guilkey, David K & Lovell, C A Knox & Sickles, Robin C, 1983. "A Comparison of the Performance of Three Flexible Functional Forms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 591-616, October.
- Morrison, Catherine J & Schwartz, Amy Ellen, 1996.
"State Infrastructure and Productive Performance,"
American Economic Review,
American Economic Association, vol. 86(5), pages 1095-1111, December.
- Lau, Lawrence J., 1978. "Applications of Profit Functions," Histoy of Economic Thought Chapters, in: Fuss, Melvyn & McFadden, Daniel (ed.), Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 3 McMaster University Archive for the History of Economic Thought.
- Lynde, Catherine & Richmond, James, 1992. "The Role of Public Capital in Production," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 37-44, February.
- Lynde, Catherine & Richmond, J, 1993. "Public Capital and Long-Run Costs in U.K. Manufacturing," Economic Journal, Royal Economic Society, vol. 103(419), pages 880-93, July.
- Nadiri, Ishaq M. & Mamuneas, T.P., 1994. "Infrastructure and Pulbic R&D Investments, and the Growth of Factor Productivity in U.S. Manufacturing Industries," Working Papers 94-26, C.V. Starr Center for Applied Economics, New York University.
- 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.
- Sturm, Jan Egbert & de Haan, Jakob, 1995.
"Is public expenditure really productive?: New evidence for the USA and The Netherlands,"
Elsevier, vol. 12(1), pages 60-72, January.
- Jan Egbert Sturm & Jakob de Haan,, 1994. "Is public expenditure really productive? New evidence for the US and the Netherlands," Working Papers 20, Centre for Economic Research, University of Groningen and University of Twente.
- Anderson, G J & Blundell, R W, 1982. "Estimation and Hypothesis Testing in Dynamic Singular Equation Systems," Econometrica, Econometric Society, vol. 50(6), pages 1559-71, November.
- Erenburg, S. J. & Wohar, Mark E., 1995. "Public and private investment: Are there causal linkages?," Journal of Macroeconomics, Elsevier, vol. 17(1), pages 1-30.
- Ernst R. Berndt & Bengt Hansson, 1991. "Measuring the Contribution of Public Infrastructure Capital in Sweden," NBER Working Papers 3842, National Bureau of Economic Research, Inc.
- Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
When requesting a correction, please mention this item's handle: RePEc:wop:ccsowp:0026. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.