Public capital formation and productivity growth: Some international evidence

This paper examines the proposition that public capital spending fosters productivity growth in the private sector using a pooled sample of seven OECD countries over the 1963–1988 period. The results indicate that there is a statistically significant positive relationship between public capital formation and the growth rate of labor productivity. This result is not sensitive to whether there is constant returns to scale to some or all inputs, whether the stochastic formulation of the pooled model is a fixed- or a random-effect specification, whether the model includes an energy variable, or whether the data are expressed in the log-differenced or logarithmic form.