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The Contribution of Local Public Infrastructure to Private Productivity and Its Political-Economy: Evidence from a Panel of Large German Cities

  • Achim Kemmerling
  • Andreas Stephan

TThis paper proposes a simultaneous-equation approach to the estimation of the contribution of infrastructure accumulation to private production. A political economy model for the allocation of public infrastructure investment grants is formulated. Our empirical findings, using a panel of large German cities for the years 1980, 1986, and 1988, suggest that cities ruled by a council sharing the State ('Bundesland') government's current political affiliation were particularly successful in attracting infrastructure investment grants. With regard to the contribution of infrastructure accumulation to growth, we find that public capital is a significant factor in private production. Moreover, at least for the sample studied, we find that simultaneity between output and public capital is weak; thus, feedback effects from output to infrastructure are negligible. ZUSAMMENFASSUNG - (Der Beitrag lokaler öffentlicher Infrastruktur zur privaten Produktivität und seine politische Ökonomie: Empirische Evidenz von einem Paneldatensatz großer deutscher Städte) Dieses Papier verwendet ein simultanes Gleichungssystem zur Schätzung des Beitrags von Infrastrukturinvestitionen zu regionalem Wachstum. Ein polit-ökonomisches Modell der Allokation von Finanzzuweisungen für öffentliche Investitionen in Infrastruktur wird formuliert. Unsere empirischen Ergebnisse basierend auf einem Paneldatensatz für große deutsche Städte in den Jahren 1980, 1986 und 1988 deuten darauf hin, dass Städte, deren Mehrheit im Stadtrat die selbe politische "Couleur" wie die Landesregierung hatte, erfolgreicher bei der Zuteilung von Finanzzuweisungen waren. Im Hinblick auf den Beitrag der Infrastrukturakkumulation auf das Wachstum finden wir, dass öffentliches Kapital ein wichtiger Faktor für die private Produktion ist. Weiterhin, zumindest für den untersuchten Zeitraum, finden wir, dass die Simultanität zwischen Output und öffentlichem Kapital gering ist; daher sind Feedback-Effekte von Output zur Infrastruktur vernachlässigbar.

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Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 01-14.

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Length: 35 pages
Date of creation: Jul 2001
Date of revision:
Publication status: Published in Public Choice , Vol. 113(3-4), December 2002, pp. 403-424.
Handle: RePEc:wzb:wzebiv:fsiv01-14
Contact details of provider: Postal: Reichpietschufer 50, 10785 Berlin, Germany
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  1. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  2. Olivier Cadot & Lars-Hendrik Röller & Andreas Stephan, 1999. "A Political Economy Model of Infrastructure Allocation: An Empirical Assessment," CIG Working Papers FS IV 99-15, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  3. Alicia H. Munnell, 1990. "How does public infrastructure affect regional economic performance?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 34, pages 69-112.
  4. David Alan Aschauer, 1988. "Government spending and the "falling rate of profit."," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 11-17.
  5. David A. Aschauer, 1989. "Public investment and productivity growth in the Group of Seven," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 17-25.
  6. Grossman, Philip J, 1994. " A Political Theory of Intergovernmental Grants," Public Choice, Springer, vol. 78(3-4), pages 295-303, March.
  7. Garcia-Mila, Teresa & McGuire, Therese J., 1992. "The contribution of publicly provided inputs to states' economies," Regional Science and Urban Economics, Elsevier, vol. 22(2), pages 229-241, June.
  8. John A. Tatom, 1991. "Public capital and private sector performance," Review, Federal Reserve Bank of St. Louis, issue May, pages 3-15.
  9. Worthington, Andrew C & Dollery, Brian E, 1998. " The Political Determination of Intergovernmental Grants in Australia," Public Choice, Springer, vol. 94(3-4), pages 299-315, March.
  10. Johansson, Eva, 1999. "Intergovernmental Grants as a Tactical Instrument: Some Empirical Evidence from Swedish Municipalities," Working Paper Series 1999:10, Uppsala University, Department of Economics.
  11. Oulasvirta, Lasse, 1997. " Real and Perceived Effects of Changing the Grant System from Specific to General Grants," Public Choice, Springer, vol. 91(3-4), pages 397-416, June.
  12. 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.
  13. John A. Tatom, 1993. "Is an infrastructure crisis lowering the nation's productivity?," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 3-21.
  14. Seitz, Helmut, 1994. "Public capital and the demand for private inputs," Journal of Public Economics, Elsevier, vol. 54(2), pages 287-307, June.
  15. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  16. Avinash Dixit & John Londregan, 1998. "Ideology, Tactics, And Efficiency In Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 497-529, May.
  17. Crihfield, John B. & Panggabean, Martin P. H., 1995. "Is public infrastructure productive? A metropolitan perspective using new capital stock estimates," Regional Science and Urban Economics, Elsevier, vol. 25(5), pages 607-630, October.
  18. Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September.
  19. Alicia H. Munnell, 1992. "Policy Watch: Infrastructure Investment and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 189-198, Fall.
  20. 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.
  21. David Alan Aschauer, 1990. "Why is infrastructure important?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 34, pages 21-68.
  22. Seitz, Helmut, 1995. "The Productivity and Supply of Urban Infrastructures," The Annals of Regional Science, Springer, vol. 29(2), pages 121-41, May.
  23. Hulten, Charles R. & Schwab, Robert M., 1997. "A fiscal federalism approach to infrastructure policy," Regional Science and Urban Economics, Elsevier, vol. 27(2), pages 139-159, April.
  24. Randall W. Eberts, 1990. "Public infrastructure and regional economic development," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 15-27.
  25. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
  26. Crain, W Mark & Oakley, Lisa K, 1995. "The Politics of Infrastructure," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 1-17, April.
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