Public capital formation and labor productivity growth in Mexico |
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Authors: | Miguel D Ramirez |
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Institution: | (1) Trinity College, U.S.A. |
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Abstract: | This paper addresses the important question whether public investment spending on economic infrastructure enhances economic
growth and labor productivity in Mexico. Following the lead of the endogenous growth literature, it presents a modified production
function which explicitly includes the positive or negative externality effects generated by additions to the public capital
stock. Using cointegration analysis, the paper proceeds to estimate a dynamic labor productivity function for the 1955–94
period that incorporates the impact of the growth rate in the stocks of both private and public capital (as opposed to the
flows) and the economically active population (EAP) (rather than the rate of population growth). The results suggest that
(lagged) increases in public investment spending on economic infrastructure—as opposed to overall public investment spending—have
a positive and highly significant effect on the rate of labor productivity growth. In addition, the estimates suggest that
increases in government consumption expenditures may have a negative effect on the rate of labor productivity growth, thus
suggesting that the composition of government spending may also play an important role in determining the rate of labor productivity
growth. Finally, the findings call into question the politically expedient policy in many Latin American countries of disproportionately
reducing public capital expenditures on economic and social infrastructure to meet targeted reductions in the fiscal deficit
as a proportion of GDP. |
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Keywords: | |
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