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The impact of the provision of public infrastructures on regional economic development in Germany

  • Seitz, Helmut
  • Licht, Georg

The present paper presents an analysis of the impact of public infrastructure capital on regional economic developments in Germany. After presenting some descriptive statistical data on the economies of the 11 regions in (West) Germany a simple theoretical model of a cost-minimizing firm is presented in which the stock of public capital is included as a proxy for public services provided to firms as a fixed unpaid factor of production. Duality theory is used to recover the productivity effects of public infrastructures by calculating the cost-saving effects that are associated with public services. It is shown that these cost-saving effects work their way through adjustments in the demand for private inputs. Using a translog cost 'function we present panel estimates for the 11 federal states of (West) Germany with labour, structures and equipment as private factors of production. The results strongly indicate that public capital formation encourages private investment. In addition, it is demonstrated empirically that with respect to private capital a distinction between structures and equipment is of crucial importance because the effects on the former are of far greater importance than the effects on the latter.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 93-13.

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Date of creation: 1993
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Handle: RePEc:zbw:zewdip:9313
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  1. Gerald A. Carlino & Richard Voith, 1989. "Accounting for differences in aggregate state productivity," Working Papers 90-1, Federal Reserve Bank of Philadelphia.
  2. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
  3. M. Ishaq Nadiri & Theofanis P. Mamuneas, 1991. "The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of U.S. Manufacturing Industries," NBER Working Papers 3887, National Bureau of Economic Research, Inc.
  4. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  5. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  6. 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.
  7. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  8. Kevin T. Duffy-Deno & Randall W. Eberts, 1989. "Public infrastructure and regional economic development: a simultaneous equations approach," Working Paper 8909, Federal Reserve Bank of Cleveland.
  9. Merriman, David, 1991. "Public capital and regional output : Another look at some Japanese and American data," Regional Science and Urban Economics, Elsevier, vol. 20(4), pages 437-458, February.
  10. Douglas Holtz-Eakin, 1992. "Solow and the States: Capital Accumulation, Productivity and Economic Growth," NBER Working Papers 4144, National Bureau of Economic Research, Inc.
  11. Luger, Michael I. & Evans, William N., 1988. "Geographic differences in production technology," Regional Science and Urban Economics, Elsevier, vol. 18(3), pages 399-424, August.
  12. 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.
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