A1329
Title: Revisiting the productivity of public capital
Authors: Lennart Empting - University of Duisburg-Essen (Germany) [presenting]
Helmut Herwartz - Georg-August-University Goettingen (Germany)
Abstract: Recent policy trends like the Green New Deal draw attention to public investment again, and therewith, to an empirical question of long-lasting presence in academic discussions: Does spending on public capital promote economic growth? As the dynamic effects are still unclear, we revise the empirical literature in this article. Based on the new, extensive data set for 23 OECD countries over the years 1960-2019, vector autoregressive (VAR) methods for heterogeneous panels are employed, and the established approaches of the literature are discussed step by step. It is found that the production function is the single long-run relation in the panel literature, and the varying cointegration ranks of the VAR literature can be summarized by r = 2 homogeneous cointegrating vectors in a panel vector error correction model (VECM). Results further confirm that a time-decreasing productivity already found in some VECM studies partially explains the puzzling and often insignificant country-specific impulse response functions (IRF).
