We examine whether economic growth is generated endogenously or exogenously, and estimute the externality effects due t o private and public capitul respectively. Applying a multivariate stochastic cointegrution method to US dutu. we find that the evidence is utlfrrvourublr t o the endogenous growth model with public infrustructure. The estimuted elusticity of output with respect to public capital is 0. I I , smaller tliun epicul vulues obtuined in single-eyuution regression studies. On the other hund. i f the share .f capitd income is tuken to be otie-third, then the spillover effect due t o privote capitul is positive but mu! be us low as 0.10.( 2 ) Only the first two cointegrating vectors are reported, and the vectors are normalized so that PI = 1.(3) Critical values for the hypotheses about cointegnting rank can be found in Table V of Johansen (1994). For example, the critical value of the Trace Test Statistic at 5% significance level is 42.35 for r = 0, 25.43 for r I and 12.49 for r S 2, and the critical value of the Maximum Eigenvalue Test Statistic at 5% significance level is 25.44 for r = 0, 19.16 for r S I and 12.49 for r S 2.run from 1927 to 1989.(4) The test statistic for H,: p, + pz + p3 = 0 and p4 ,= 0 is Chi-square distributed with 2 degrees of freedom.
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