Public Capital and Total Factor Productivity

Abstract

This paper examines the impact of the stock of public capital on output levels and productivity growth rates in the United States. The analysis is based on the estimation of parameters in a translog profit function. Prices of intermediate goods are introduced into a quasiproduction function for value-added. Recently developed econometric techniques for dealing with nonstationary time series are used in the estimation. The authors find that the services of public capital are an important part of the production process and that about 40 percent of the productivity decline is explained by a fall in the public capital-labor ratio. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.