Public Investment Rules and Endogenous Growth with Empirical Evidence From Canada

This paper examines theoretically and empirically the effects of public investmentrules on output growth in an economy with private and public capital. It is shownthat the decisions on public capital formation are closely associated with the growthrate of output and generate endogenous growth. A permanent change in the policyrule implies a new long-run growth rate of output, but the economy will onlygradually approach the new steady-state due to adjustment costs in private capitalaccumulation. The model predictions are tested using data from Canada for theperiod 1955-1999. The data support the endogenous growth hypothesis and thetwo central assumptions of the model: (i) the growth rate of output follows closelythe rate of infrastructure formation and (ii) private capital formation also followsthe rate of infrastructure formation but adjusts with a delay.     

Public Capital and Economic Growth: A Convergence Approach

This paper estimates dynamic effects of public capital on output per capita. Based on an open economy growth model, I derive a version of the income convergence equation augmented with public capital. This equation is estimated using panel data of United States and Japanese regions. Sensible results are obtained when public capital is disaggregated into components. In both countries, the infrastructure component of public capital turns out to have significantly positive effects. The implied elasticity of output with respect to infrastructure is somewhere around 0.1 to 0.15. This suggests a modest contribution of infrastructure to postwar growth of the two countries.     

Fiscal position and the financing of productive government expenditures: an application to Latin America

Government spending on public infrastructure, education, and health care can increase economic growth. However, the appropriate financing depends on a country’s fiscal position. We develop a two-sector endogenous growth model to explore how variations in the composition and financing of government expenditures affect economic growth. We find that, when tax rates are moderate, funding public investment by raising taxes may increase long-run growth. If existing tax rates are high, public investment is only growth enhancing if funded by restructuring the composition of overall public spending. Additionally, public investment that is debt financed can have adverse effects on long-run growth due to the resulting increases in interest rates and debt-servicing costs.     

Aggregate infrastructure capital stock and long-run growth: Evidence from Finnish data

In this paper, Bayesian methods and the Finnish aggregate infrastructure capital series from 1860 to 2003 are used to explore how government infrastructure policy affects long-run output growth. We use Finnish data, since to the best of our knowledge the Finnish land and water construction investments series is the best available sufficiently long time series on aggregate infrastructure investments. The Finnish data provide strong and robust evidence indicating that permanent changes in government infrastructure policy have permanent effects on the growth rate of output.     

政府公共资本投资的长期经济增长效应

本文首先建立一个包含政府公共资本投资的两部门内生增长模型,并把公共资本投资分为政府物质资本投资和人力资本投资,从而对公共资本投资的长期经济增长效应进行理论分析。结论是,两种形式的公共资本投资对长期经济增长都可能具有正效应也可能具有负效应,取决于民间经济主体消费跨时替代弹性大小。其次,我们利用向量自回归分析框架,对我国1978—2004年间公共资本投资对长期经济增长的影响作实证分析。结论是,我国两种形式的公共资本投资与经济增长之间存在着长期均衡关系,其中政府公共物质资本投资对长期经济增长的正影响更为显著,而政府公共人力资本投资对长期经济增长的正影响较小,且在短期内不利于经济增长。这一结论对我国今后科学制定财政政策和选择公共投资领域都具有重要意义。     

Monetary Shocks and Real Exchange Rate Hysteresis: Evidence from the G-7 Countries

Long-run monetary neutrality specifies that nominal disturbances do not affect long-run real exchange rates. However, the "over depreciation" of the US dollar in the late 1980s, after its strong appreciation earlier in the decade, suggested to a number of observers that nominal disturbances alter long-run real exchange rates; that is, money supply shocks entail real exchange rate hysteresis. Using data from the G-7 countries and the post-1973 float, the paper measures the long-run effects of relative money supply disturbances on real US dollar exchange rates. Little evidence of hysteretic monetary policy effects is found.     

The causal relationship between equipment investment and infrastructures on economic growth in China

There is agreement in the literature on economic growth concerning the transitory effects of capital accumulation on the process of economic development. However, controversy arises if this effect is permanent. In this sense, the key point is the embodied technological progress and whether supply factors predominate among the determinants of capital accumulation. Only in this case should expect long-run effects of capital accumulation on economic growth. Inspired by this idea, I focus the study on two elements accounting for economic development—equipment investment and productive infrastructure and I also analyze the type of the empirical relationship that exists between them. The results indicate that equipment investment and infrastructures have played a significant role in accounting for long-run growth in China. However, I do not find empirical evidence supporting any relationship between the two types of investment. In addition, I find that foreign trade has stimulated output and equipment investment in the long run. Finally, it is found that innovation activities encourage equipment investment in the long run.     

Effects of Public Infrastructure on Cost Structure and Productivity in the Private Sector

This paper examines the effects of public infrastructure on the cost structure and productivity in the private sector in Australia. Translog cost functions incorporating public capital infrastructure are estimated for the aggregate private sector as well as for seven broad industry groups using annual time series data for 1968/69–1995/96. The effects of public infrastructure on productivity are measured in terms of both cost-saving and output-augmenting measures. The empirical results suggest that public infrastructure has a positive and significant impact on productivity in private sector industries. Public capital serves as a substitute for both private capital and labour. The rates of return to public capital are significant and vary over the sample period.     

Energy in America's future

Energy in America's Future, the book reported on in this article, assembled facts and performed analyses required for making informed energy choices. It reached broad conclusions on supply and demand prospects and on the environmental and other social aspects of policy choices. Although near-term constraints are severely binding, the nation's natural resource position is favorable for long-run supply expansion. Future technologies are also promising in cost terms. Although costs are bound to rise, a ceiling on long-run supply costs looks to be possible at real levels surprisingly close to current prices. Energy consumption in relationship to overall national output (GNP) will be growing at a slower rate than in recent decades. Consumers will use relatively less energy as a result of higher energy prices, conservation incentives, and new energy-using technology. Even so, overall energy use will grow. Major energy demand policy issues concern not just the likely rate of growth of consumption, but also the possible problems connected with optimizing energy efficiency at the expense of economic efficiency (i.e., output in relation to all inputs, particularly those of labor and capital). Environmental impacts and concerns about questions of human health and safety will continue to affect public acceptance of particular energy technologies. The public will need to be adequately informed on the comparative risks of energy supply technologies, and the technical and institutional means available for reducing these risks. The price system must be permitted to function to the maximum feasible extent. In addition, the task for political leadership is to forge a public consensus in support of achievable energy goals. This has been difficult because of conflicting public perceptions of the facts and clashes in social values among different groups. The future prospects for achieving a national energy consensus should be enhanced by the outlook for slower energy demand growth and favorable supply prospects along with potential improvements in the environmental side effects associated with new and improved supply technologies. As knowledge of these changing circumstances becomes more broadly disseminated, the ability to achieve broad public support of energy goals should grow stronger.     

From Malthusian war to Solovian peace

We present a two-country version of Hansen and Prescott's two-sector long-run growth model, introducing war by letting the countries take land from each other, at the cost of destroying capital and killing people. Because land is an input only in the Malthus sector the transition to a Solow economy brings a decline in warfare, broadly consistent with an observed 19th-century decrease in Great Power wars. We also find, inter alia, that if governments are Malthus-biased (care less about Solow output), the transition can lead temporarily to more war.     

Endowments,Specialization, and Policy

The paper explores the relationship between industry shares in production and their determinants including factor endowments, technology, and government policies, in a GDP–function framework. We use a new international panel dataset on production and trade compiled by the World Bank. As an intermediate step we calculate Hicks‐neutral productivity indices that vary across industries, time, and countries. We find that own‐TFP is robustly associated with industry shares across time and countries and that, after correcting for these productivity differences, output shares are related to factor endowments (Rybczynski effects) in a plausible way. Once Rybczynski effects are controlled for, we find little evidence of demand‐side policies (import tariffs) affecting the allocation of resources; we find, however, more role for supply‐side policies as the relative size of capital‐intensive industries is positively associated with infrastructure–capital endowments.     

Input Demand and the Short- and Long-Run Employment Thresholds: An Empirical Analysis for the German Manufacturing Sector

The concept of the 'employment threshold' plays an important role in the public discussion of unemployment. The employment threshold is defined as that growth rate of output necessary to keep employment constant despite the continuous rise in productivity. It is related to the Okun coefficient which describes the relationship between the changes in output and unemployment. Many contributions to this debate give the impression that the employment threshold is more or less a structural characteristic independent of economic variables. In this paper we derive short- and long-run employment thresholds from an input demand system and show empirically that they depend on factor prices and capital accumulation. Higher wage rates raise the employment threshold and reduce the probability that a positive output shock will increase employment.     

Public and private capital productivity in Russia: a non-parametric investigation

The productivity of public capital has been very popular research topic for US and other OECD countries, while studies using data from transitional countries are almost non-existent. In this paper, we analyze the productivity of public and private capital in Russia with parametric and non-parametric regression methods utilizing a unique regional level panel data from 2003 to 2007. More specifically, we assess public capital’s spillover effects, i.e., the productivity of public capital on private output, as well as the productivity of different capital ownership types on total output. We find that public capital has a clear positive effect on private output. However, our estimates and test statistics show that parametric methods are not able to grasp vast non-linearities and heterogeneity present among Russian regions, while the non-parametric approach can capture these important features of the data better. Furthermore, we find that multicollinearity is an important methodological problem which should be accounted for in analysis concerning capital data. Our results also suggest that the impact of public capital in Russia is heterogeneous in the sense that for some regions its contribution to private output is insignificant or even negative while it has a considerable positive role for most regions. Concerning the capital elasticities of total output, we find that public capital is less productive than private capital and roughly as productive as joint private-public capital.     

Do R&D activities matter for productivity? A regional spatial approach assessing the role of human and social capital

We estimate the long-run effects of Research and Development (R&D) activities on Total Factor Productivity (TFP) across the Spanish regions during 1980–2007. We use panel data cointegration methods and control for spatial externalities linked to human and social capital. Our empirical results, robust to different specifications and additional control variables, show a significant direct effect of public R&D capital on productivity. No significant results are observed for private R&D capital. In contrast, the effect of patents is highly significant but proves to be small. Furthermore, Spain has greatly benefited from importing technology from leading countries. Spatial spillovers are crucial in explaining long-run productivity for the case of Spain. Human and social capital exert direct positive impacts, however, their effects are geographically bounded and negative spatial spillovers offset direct outcomes. Overall TFP increases when neighbouring territories engage in R&D activities.     

On the interaction between public and private capital in economic growth

This paper introduces two forms of interaction between private and public capital in an endogenous growth model in which productive government expenditure takes the form of a stock-variable and public capital is used in part as an input in the production of final output and in part to increase its own supply. While the first form of interaction involves the stocks of the two capital-goods and takes place within the final output sector through the specification of the aggregate production function (Cobb?CDouglas vs. CES), the second one concerns the rates of investment in the two kinds of capital. The share of productive public expenditure devoted to output production can be either exogenous or endogenous. Our results suggest that when this share is exogenous, along the balanced growth path the optimal growth rate of the economy is a positive function of the degree of complementarity between the two forms of investment. When the share of productive public expenditure devoted to output production is endogenous, the public capital share in GDP becomes, along with the model??s preference parameters, an important determinant of the economy??s long run growth. We also find that the optimal growth rate is an increasing function of the elasticity of substitution between public and private capital inputs in goods production, and is independent of the complementarity/substitutability between the two forms of investment.     

The long-run effect of foreign direct investment on total factor productivity in developing countries: a panel cointegration analysis

This paper examines the long-run effect of the level of foreign direct investment (FDI) on the level of total factor productivity (TFP) for 49 developing countries for the period 1981–2011 using panel cointegration and causality techniques. It is found that (i) FDI has, on average, a negative long-run effect on TFP in developing countries, (ii) long-run causality runs in only one direction, from FDI to TFP, (iii) in the short run, TFP has a negative effect on FDI, and (iv) the long-run effect of FDI of TFP differs between selected groups of countries: While the estimated long-run FDI–TFP coefficients are always relatively large, negative, and significant for countries with lower levels of human capital, financial development, and trade openness, the estimated effects are relatively small, insignificant, or even significantly positive for subgroups of countries with higher levels of human capital, financial development, and trade openness.     

Cyclical wage movements in emerging markets compared to developed economies: The role of interest rates

This paper documents that, at the aggregate level, (i) real wages are positively correlated with output and, on average, lag output by about one quarter in emerging markets, while there are no systematic patterns in developed economies, and (ii) real wage volatility (relative to output volatility) is about twice as high in emerging markets compared with developed economies. We then present a small open economy model with productivity shocks and countercyclical interest rates. The model incorporates a working capital requirement and the Jaimovich and Rebelo (2009) preference that allows for flexible parameterization of the strength of income effects on labor supply. The model can account for the high volatility of wage and consumption relative to output and countercyclical trade balances that characterize emerging-market economies. During economic downturns, rising interest rates in emerging markets induce relatively large income effects on labor supply, so households would not reduce their labor input as much even though wages drop significantly.     

Re-evaluation of global innovation index based on a structural equation model

The Global Innovation Index (GII) was proposed to observe the innovation capability and efficiency levels of individual countries using input and output factors. However, it does not consider potential structural relationships among factors affecting the innovation performance of a country. In this study, we proposed a structural equation model (SEM) based on the hypothesised national innovation structure among seven factors representing inputs (institution, human capital and research, infrastructure, market sophistication, and business sophistication) and outputs (knowledge and technology outputs, and creative outputs). Using GII data from 2013, we discovered that business sophistication and infrastructure have the strongest direct and indirect effects on creative output, respectively. In addition, a new ranking is obtained based on the fitted SEM. We provide feedback information to improve innovation capabilities.     

Output gaps

What is the output gap? I discuss three alternative definitions: the deviation of output from its long-run stochastic trend (i.e., the “Beveridge–Nelson cycle”); the deviation of output from the level consistent with current technologies and normal utilization of capital and labor input (i.e., the “production-function approach”); and the deviation of output from “flexible-price” output (i.e., its “natural rate”). Estimates of each concept are presented from a dynamic–stochastic–general-equilibrium (DSGE) model of the U.S. economy used at the Federal Reserve Board. Four points are emphasized: The DSGE model’s estimate of the gap (for each definition) is very similar to gaps from policy institutions, but the model’s estimate of potential growth has a higher variance and substantially different covariance with GDP growth; the change in the Beveridge–Nelson trend covaries negatively with the change in the gap in the DSGE model, providing a structural model estimate of a controversial parameter; in this model, estimates of the natural-rate concept are similar to those based on the Beveridge–Nelson and production function approaches; and the estimate of the output gap, irrespective of definition, is closely related to unemployment fluctuations.     

The effect of corruption on capital accumulation

This paper examines the effect of corruption in infrastructure development as well as in capital and labor markets, on capital accumulation and output in an overlapping generations model. Corruption affects income redistribution, government expenditures on infrastructure, firms’ incentive to invest, and workers’ incentive to supply labor. An increase in corruption in infrastructure development decreases capital accumulation and output if the decrease in the savings of ordinary workers is sufficiently large. An increase in corruption in the capital market decreases capital accumulation and output. An increase in corruption in labor market decreases capital accumulation and output when labor supply is completely inelastic. Simulation results based on plausible parameter values indicate that an increase in corruption in the labor market will also reduce labor supply, capital accumulation and output.