Theoretical approaches and empirical results on the economic effects of public investment

Andraz, Jorge Miguel; Pereira, Alfredo

http://hdl.handle.net/10400.1/5167

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Authors

Andraz, Jorge Miguel

Pereira, Alfredo

Abstract(s)

This paper presents an extensive discussion of the literature on the economic impact of public investment on infrastructures both for the US and internationally. The paper expands the focus of previous surveys by concentrating on empirical econometric studies about the effects of public investment as well as on the evolution of the methodological issues motivated by criticisms. From the empirical results reported in the literature, there is a general evidence that suggests that nonmilitary public investment contributes significantly to output growth and production costs reduction, not only as a direct input to production function, but also by its influence on private factors of production. This evidence raises the importance of the endogeneity of private inputs and also public investment, as well as the direction of causality. The studies performed at sectoral and regional levels show very often unbalanced effects from public investment. Moreover, as the geographic focus narrows,the estimated elasticities with respect to public capital become smaller, which suggests the existence of spillover effects.