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Recent literature has explored the relationship between efficiency-adjusted public capital and economic growth. A debate on whether capital grants, and especially EU funds actually contribute to growth has gained prominence lately. This paper empirically assesses the relationship between the quality of public investment, capital grants, and growth in a sample of 43 emerging and peripheral economies over 1991-2015. To this end, the contribution of public capital to growth is estimated using efficiency-adjusted public capital stock series, constructed reflecting the quality of public investment management institutions. In addition, the determinants of effective public investment are analyzed. The results suggest that capital grants contribute positively to effective public investment, and the latter is significant in explaining variations in economic growth. Finally, the paper illustrates the impact of raising EU funds absorption on potential growth in emerging and peripheral EU countries.
Laying a solid foundation of economic facts and ideas, this book provides a comprehensive look at the critical role of public capital in development.
This paper constructs an efficiency-adjusted public capital stock series and re-examines the public capital and growth relationship for 52 developing countries. The results show that public capital is a significant contributor to economic growth. Although the estimated coefficient for the income share of public capital is larger in middle- than in low-income countries, the opposite is true for the marginal product of public capital. The quality of public investment, as measured by variables capturing the adequacy of project selection and implementation, are statistically significant in explaining variations in economic growth, a result mainly driven by low-income countries.
This paper looks at the empirical record whether big infrastructure and public capital drives have succeeded in accelerating economic growth in low-income countries. It looks at big long-lasting drives in public capital spending, as these were arguably clear and exogenous policy decisions. On average the evidence shows only a weak positive association between investment spending and growth and only in the same year, as lagged impacts are not significant. Furthermore, there is little evidence of long term positive impacts. Some individual countries may be exceptions to this general result, as for example Ethiopia in recent years, as high public investment has coincided with high GDP growth, but it is probably too early to draw definitive conclusions. The fact that the positive association is largely instantaneous argues for the importance of either reverse causality, as capital spending tends to be cut in slumps and increased in booms, or Keynesian demand effects, as spending boosts output in the short run. It argues against the importance of long term productivity effects, as these are triggered by the completed investments (which take several years) and not by the mere spending on the investments. In fact a slump in growth rather than a boom has followed many public capital drives of the past. Case studies indicate that public investment drives tend eventually to be financed by borrowing and have been plagued by poor analytics at the time investment projects were chosen, incentive problems and interest-group-infested investment choices. These observations suggest that the current public investment drives will be more likely to succeed if governments do not behave as in the past, and instead take analytical issues seriously and safeguard their decision process against interests that distort public investment decisions.
This edited collection explores the links between human capital (both in the form of health and in the form of education), demographic change, and economic growth. Using empirical as well as theoretical perspectives, the authors investigate several important issues in the context of human capital, namely population ageing, inequality, public policy, and long-term economic development. Ultimately, they demonstrate that the accumulation of human capital is of crucial importance to long-run economic growth.
Since Portugal joined the European Union (EU) in 1986, it has received on average 3.3 percent of GDP in transfers per annum from the EU. These transfers-primarily designed to promote infrastructure investment, human capital accumulation, and private investment-boosted the expansion of public investment (including capital transfers) from 4.8 percent of GDP in 1986 to 6.3 percent of GDP in 1998. As a result, gross public capital formation in Portugal (as a share of GDP) is currently the second highest in the EU area (see Figure 1). On average, the real value of the public capital stock grew by 5.1 percent during 1986-95, which is considerably above that of the United States (2.1 percent) but below that of Spain (see Table 1). However, the highest average change in the real value of the Portuguese capital stock was recorded during the 1974-85 period, just after the shift in the political regime,2 indicating that even before joining the EU a substantial share of resources was devoted to public capital accumulation.
This paper sheds light on how important public capital is for countries trying to industrialize and achieve faster economic growth. To this end, a small empirical model of industrial development is formulated and applied to manufacturing level and growth data for 57 advanced and developing countries for the time period of 1970 to 2000. In estimating the impact of public capital on industry special care is taken to deal with country-specific effects, reverse causality and endogeneity bias. The findings are clear: public capital has important explanatory power for why some countries have managed to industrialize, while others have not. Stages of development influence how strongly public capital matters, but there is evidence of impact at all income levels. Moreover, it seems that the returns to public investment are, largely, diminishing as income increases. A second key conclusion is that growth of public capital not only explains long-term levels of industry, but also how rapidly industry grows. Interestingly, the largest impact occurs for the fastest growing countries, i.e., the Asian tiger economies, and the High-income ones. Based on rates of return on public capital calculations, little support is found for the notion that public infrastructure is overprovided in developing countries. To the contrary, the rate of return on public capital is positive at all stages of development, although higher for the countries least endowed with such capital and those growing at the fastest rate.
This books presents a theory of economic development very different from the "stages of growth" hypothesis or strategies emphasizing foreign aid, trade, or regional association. Leaving these aside, the author breaks new ground by focusing on the use of domestic capital markets to stimulate economic performance. He suggests a "bootstrap" approach in which successful development would depend largely on policy choices made by national authorities in the developing countries themselves. Central to his theory is the freeing of domestic financial markets to allow interest rates to reflect the true scarcity of capital in a developing economy. His analysis leads to a critique of prevailing monetary theory and to a new view of the relation between money and physical capital—a view with policy implications for governments striving to overcome the vicious circle of inflation and stagnation. Examining the performance of South Korea, Taiwan, Brazil, and other countries, the author suggests that their success or failure has depended primarily on steps taken in the monetary sector. He concludes that monetary reform should take precedence over other development measures, such as tariff and tax reform or the encouragement of foreign capital investment. In addition to challenging much of the conventional wisdom of development, the author's revision of accepted monetary theory may be relevant for mature economies that face monetary problems.