How to Estimate Public Capital Productivity?

Abstract

We propose an evaluation of the main empirical approaches used in the literature to estimate the contribution of public capital stock to growth and private factors' productivity. Our analysis is based on the replication of these approaches on pseudo-samples generated using a stochastic general equilibrium model, built as to reproduce the main long-run relations observed in US post-war historical data. The results suggest that the production function approach may not be reliable to estimate this contribution. In our model, this approach largely overestimates the public capital elasticity, given the presence of a common stochastic trend shared by all non-stationary inputsInfrastructures, Public capital, Cointegrated regressors..