Table of Contents

2001

Volume One, Number 2
    

Symposium on Public Capital

Raymond G. Batina, Editor

1. The Effects of Public Capital on the Economy
   Raymond G. Batina
    
   This paper introduces the study of the effects of public capital on the economy and briefly discusses the papers included in this symposium. Each paper presents new results on the effects of public capital on the economy. Different data sets are used, a variety of estimation strategies are employed, and several countries are studied including the US, Japan, the Netherlands, and a collection of OECD countries. In general, the papers included in this volume provide support for the result that public capital does have a positive effect on output and on economic growth, and can lower cost in certain industries such as agriculture. However, the magnitude of the effects may not be as large as the early estimates tended to indicate in every case.

2. Output and Employment Effects on Public Capital
   David Alan Aschauer
    
   This paper develops a two-equation model linking public capital to employment and output growth. The basic innovation is that the relationship between public capital and economic growth is non-linear, which allows an estimate of the growth-maximizing level of public capital (relative to private capital). The model is empirically implemented using a variety of estimation procedures with data for the 48 contiguous United States over the period from 1970 to 1990. Some of the more significant findings of the paper include: generally positive effects of public capital on economic growth (both in terms of output and employment); an estimated value of the growth-maximizing public capital stock between 50 and 70 percent of the private capital stock; negative effects of public debt and taxes on economic growth; somewhat higher growth effects from public capital in the 1980s than the 1970s; and somewhat larger growth effects from public capital in the Snowbelt than in the Sunbelt.

3. Public Capital Productivity in Japan
   Toshihiro Ihori & Hiroki Kondo
   
   We investigate the efficiency of disaggregated public capital provision for the Japanese economy. We estimate the optimality conditions based on simultaneous Euler equations by using GMM. Our results suggest that public capital productivities have been relatively high and divergent among several public capital goods. The allocation of public works is not optimal yet in Japan.

4. Public Infrastructure Impacts on U.S. Agricultural Production: A State-Level Panel Analysis of Costs and Netput Composition
   Catherine J. Morrison Paul, V. Eldon Ball, Ronald G. Felthoven, & Richard Nehring
   
   In this study we consider the potential for public infrastructure investment in the transportation (highway) network to enhance the productivity of the U.S. agriculture sector. Using state level panel data for 1960-1996 we measure cost-saving shadow values for public infrastructure (G). The analysis is based on a cost function model of land, labor, capital, fertilizer, pesticide and "other" material input demands, which is augmented by pricing equations for crop and animal outputs to reflect profit maximization. We also distinguish the input- and output-specific components of the shadow value measures, and their implications for netput compositional changes. The results indicate that infrastructure investment generates cost-savings benefits from substitution for all inputs, with land-using and materials-saving biases. In addition, G expenditures are found to generate larger marginal benefits for animal outputs than for crops.

5. Convergence of Public Capital Investment Among the United States, 1977-1996
   Chris Annala & Stephen J. Perez
   
   In recent years there has been a significant amount of research on the issue of income convergence between nations. There have also been several studies examining income convergence among the United States. This paper examines convergence in public capital investment among the fifty United States from 1977-1996. We find significant evidence that public capital investment has converged over this time period in terms of both absolute and conditional convergence.

6. The Impact of Public Infrastructure Capital on the Private Sector of the Netherlands: An Application of the Symmetric Generalized McFadden Cost Function
   Jan-Egbert Sturm
   
   This paper extends the symmetric generalized McFadden cost function by incorporating public infrastructure capital as an unpaid fixed input, and estimates the new function using Dutch data for the post-World War II period. Several elasticities concerning public infrastructure are estimated in order to uncover the productivity effects of public infrastructure. We conclude that the sheltered sector of the Dutch economy has benefited from infrastructure investment. Experimenting with several variations of the model reveals that this outcome is robust. However, despite these unambiguous results, the relationship between private inputs and public infrastructure is unclear because the private input elasticities of infrastructure change sign during the estimation period.

7. Public Investment and Private Sector Performance: International Evidence
   Alfredo M. Pereira
   
   This paper analyzes the effects of public investment on aggregate private sector performance for a group of twelve OECD economies. The empirical results are based on impulse response function analysis associated with country-specific VAR/ECM models. Estimation results suggest that for most countries, public investment crowds in private investment while it does not substantially affect employment. More importantly, the effects of public investment on private output are positive for all the countries. Germany, Japan, Sweden, UK, and US are the countries with the highest long-term elasticities of output with respect to public investment. Therefore, there seems to be a strong correlation across countries between the elasticity of output with respect to public investment and the levels of economic achievement. Finally, empirical results suggest that public investment affects labor productivity growth positively for all countries. Accordingly, the decline in public investment is a legitimate candidate to explain the slowdown of labor productivity growth in these countries.