Economic Performance and Public Infrastructure: An Application to Greek Manufacturing

Abstract

To comprehend the impact of public infrastructure on economic performance this paper provides a measure of productivity growth as derived from duality theory. This productivity growth is decomposed into the components of technical change, returns to scale and the effects of public infrastructure, the variable of our interest. In an application, we opt for Greek manufacturing so as to investigate whether the decline in its growth rate is partly explained by public infrastructure. Despite some variation in the estimation results of shadow shares across industries, public infrastructure asserts a cost saving effect in most industries, though it also appears that traditional labourintensive industries with lower level of technological advancement do not benefit from the provision of public infrastructure. The estimation results further demonstrate that while public infrastructure enhanced productivity growth over the sample period for most industries, low infrastructure investment in the 1970s and the 1980s undermined productivity growth.

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“…Many researchers have analysed the impact of infrastructure on regional competitiveness, economic growth, income inequality, labour productivity, environmental impact and well-being (Baldwin & Dixon, 2008). Mamatzakis (2008) argues that infrastructure is one of the most important components of economic activity in Greece. His predictions show that public infrastructure reduces costs in most manufacturing industries, boosting resource productivity growth.…”