Is Public Capital Productive? Evidence from a Meta‐analysis

Núñez-Serrano, Juan A.; Velázquez, Francisco J.

doi:10.1093/aepp/ppw012

Cited by 27 publications

(9 citation statements)

References 123 publications

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“…Another branch of empirical literature, that studies the effects of additional infrastructure spending, considers the production function approach (Núñez-Serrano and Velázquez [91]; Agénor and Neanidis [92]; Bom and Ligthart [93]; Romp and De Hann [72]). This approach studies the technical relationship between public capital and other production factors on the one hand, and output on the other.…”

Section: Changes In Efficiency Have Direct and Potentially Powerful Imentioning

confidence: 99%

“…The general conclusion of this strand of the literature is that public capital-and in particular investment in core infrastructure (Bom and Ligthart [93])-supports the GDP as well as potential output. The empirical results on positive effects of public investment differ across countries, regions, and sectors (Bom and Lighart [93]; Núñez-Serrano and Velázquez [91]).…”

Section: Changes In Efficiency Have Direct and Potentially Powerful Imentioning

confidence: 99%

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Can an Increase of Infrastructure Spending Contribute to Higher Potential Output in the Medium and Longer Term?

Pierleoni¹

2019

TEL

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This discussion on recent economic literature concerns some issues on potential output and related policy implications. It is not clear to what extent potential output growth has been affected by the recent crisis. Then the actual stabilization policies-based on the existence of output gaps and public debt sustainability-might not be appropriate to mitigate effectively cyclical fluctuations and to stimulate economic growth. The recent empirical evidence on the determinants of potential output-i.e. the origin of cyclical fluctuations-leads to a higher uncertainty on potential output measurement. Moreover the existing methods to estimate potential output present some weaknesses reducing reliability of the estimation results. Focusing on European case, the measure of potential output is considered as an useful guidance for policy. In particular, Stability and Growth Pact and Treaty on Stability, Coordination and Governance in the Economic and Monetary Union refer to the concepts of potential output, output gap and structural budget balance. Recently academics and some policy makers have criticized these measures and the related austerity policy because they worsened the economic situation. According to recent theoretical and empirical contributions it is important to rethink at the role of fiscal policy, focusing on fiscal stimulus and in particular on additional infrastructure spending because it can positively affect GDP as well as potential output. A part of this literature discusses extensively how public capital affects the economy. Under certain conditions such as a good institutional framework and sound projects, a higher spending on public infrastructure has a high economic impact.

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Section: Changes In Efficiency Have Direct and Potentially Powerful Imentioning

confidence: 99%

Section: Changes In Efficiency Have Direct and Potentially Powerful Imentioning

confidence: 99%

Can an Increase of Infrastructure Spending Contribute to Higher Potential Output in the Medium and Longer Term?

Pierleoni¹

2019

TEL

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“…The effect of public investment on growth is most sensitive to the elasticity of output to public capital, , which we calibrate carefully in this subsection based on two meta-analysis studies -- Bom and Ligthart (2014) and Nunez-Serrano and Velazquez (2016), and a recent paper by Calderon et al (2015). Meta-analyses are necessary due to the controversy in the literature on this parameter with a range of studies with different samples, definitions and methodologies.…”

Section: 2mentioning

confidence: 99%

Assessing the Effect of Public Capital on Growth: An Extension of the World Bank Long-Term Growth Model

Devadas¹,

Pennings²

2018

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To analyze the effect of an increase in the quantity or quality of public investment on growth, this paper extends the World Bank's Long-Term Growth Model (LTGM), by separating the total capital stock into public and private portions, with the former adjusted for its quality. The paper presents the Long-Term Growth Model Public Capital Extension (LTGM-PC) and accompanying freely downloadable Excel-based tool. It also constructs a new Infrastructure Efficiency Index (IEI), by combining quality indicators for power, roads, and water as a cardinal measure of the quality of public capital in each country. In the model, public investment generates a larger boost to growth if existing stocks of public capital are low, or if public capital is particularly important in the production function. Through the lens of the model and utilizing newly-collated cross-country data, the paper presents three stylized facts and some related policy implications. First, the measured public capital stock is roughly constant as a share of gross domestic product (GDP) across income groups, which implies that the returns to new public investment, and its effect on growth, are roughly constant across development levels. Second, developing countries are relatively short of private capital, which means that private investment provides the largest boost to growth in low-income countries. Third, low-income countries have the lowest quality of public capital and the lowest efficient public capital stock as a share of gross domestic product. Although this does not affect the returns to public investment, it means that improving the efficiency of public investment has a sizable effect on growth in low-income countries. Quantitatively, a permanent 1ppt GDP increase in public investment boosts growth by around 0.1-0.2ppts over the following few years (depending on the parameters), with the effect declining over time.

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“…Public investments, or public capital, have been shown to contribute to economic growth both in the short and the long run (see e.g. Núñez-Serrano and Velázquez, 2016;IMF, 2014;Pereira and Andraz, 2013;Romp and De Haan, 2007), although the effect varies greatly across regions, industries and types of investment (Bom and Ligthart, 2014b). Furthermore, due to international spillovers, investment cuts may harm the growth prospects in neighbouring countries (Bom and Ligthart, 2014b).…”

Section: Introductionmentioning

confidence: 99%

Public capital in the 21st century: as productive as ever?

2018

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The global financial crisis and the euro area sovereign debt crisis that followed induced a rapid deterioration in the fiscal positions of countries across the globe. In the ensuing fiscal adjustment process, public investments were severely reduced in many countries. How harmful is this for growth perspectives? Our main objective is to find out whether the importance of public capital for long run output growth has changed in recent years. We also aim to provide information on the relevance of international spillovers of public capital. To these ends, we expand time series on public capital stocks for 20 OECD countries as constructed by Kamps (2006) and estimate country-specific recursive VARs. Results show that the effect of public capital shocks on economic growth has not increased in general, although results differ widely between countries. This suggests that the current level of public investments generally does not pose an immediate threat to potential output. Of course, this could change if low investment levels are sustained for a long time. We furthermore provide some tentative evidence of positive spillovers of public capital shocks between European countries.

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Is Public Capital Productive? Evidence from a Meta‐analysis

Cited by 27 publications

References 123 publications

Can an Increase of Infrastructure Spending Contribute to Higher Potential Output in the Medium and Longer Term?

Can an Increase of Infrastructure Spending Contribute to Higher Potential Output in the Medium and Longer Term?

Assessing the Effect of Public Capital on Growth: An Extension of the World Bank Long-Term Growth Model

Public capital in the 21st century: as productive as ever?

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