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Public Investment Rules and Endogenous Growth with Empirical Evidence From Canada
Author(s) -
Kalyvitis Sarantis
Publication year - 2003
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/1467-9485.00256
Subject(s) - economics , endogenous growth theory , public capital , investment (military) , private capital , public infrastructure , private sector , monetary economics , capital (architecture) , capital deepening , growth rate , macroeconomics , public investment , capital formation , human capital , market economy , production (economics) , financial capital , fiscal policy , economic growth , history , archaeology , politics , political science , law , geometry , mathematics
A bstractThis 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.