Public Capital and Aggregate Growth in the United States: Is Public Capital Productive?

Rafael Flores de Frutos () and Alfredo Pereira
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Rafael Flores de Frutos: Instituto Complutense de Análisis Económico. Universidad Complutense de Madrid.

No 9313, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: This paper deals with the empirical relationships between public capital and aggregate economic growth in the United States, and in particular the question of whether or not public capital is productive. It develops a theoretical framework which allows for full consideration of feedback among variables without imposing a priori dynamic structural constraints. Parameter estimates are obtained through a VARMA model. This approach departs from the current literature, which relies on a single equation approach to estimate production functions and implicitly assumes the absence of feedback relations. In this paper estimates for the period 1956-1989 suggest that public capital has a substantial effect on production as well as on private capital formation and on labor. Furthermore, decisions on public capital seem to follow a policy rule that relates the current stock of public capital positively with lagged output and negatively with lagged labor. Our results are shown to be compatible with different specifications of production functions, in which public capital mayor may or may not be present. Therefore, current interpretations of the importance of the effects of public capital in terms of the size of the estimated parameters in a production function framework are not conclusive.

Keywords: United State; Public capital (search for similar items in EconPapers)
Pages: 33 pages
Date: 1993
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