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Revisiting the Productivity Effects of Public Capital

Author

Listed:
  • Zhezhi Hou

    (Southwestern University of Finance and Economics)

  • Shunan Zhao

    (Oakland University)

  • Subal C. Kumbhakar

    (State University of New York
    Czech University of Life Sciences Prague)

Abstract

We explore various production functions and estimators to examine the productivity effects of public capital using US state-level data from 1986 to 2005. We show how the estimated effects vary with several factors, including the use of flexible nonparametric and semiparametric production functions, the decomposition of the total effect into Hicks-neutral and non-neutral effects, the control of cross-sectional dependence using factor models, and the disaggregation of public capital into its components. In general, we find a positive overall average effect of public capital. However, considerable heterogeneity exists, and incorporating factor models into the production function leads to insignificant public capital effects. We complement our investigation by conducting additional robustness checks on the results.

Suggested Citation

  • Zhezhi Hou & Shunan Zhao & Subal C. Kumbhakar, 2025. "Revisiting the Productivity Effects of Public Capital," Empirical Economics, Springer, vol. 68(3), pages 1233-1264, March.
    • Handle: RePEc:spr:empeco:v:68:y:2025:i:3:d:10.1007_s00181-024-02670-4
    DOI: 10.1007/s00181-024-02670-4
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    More about this item

    Keywords

    Public capital; Productivity; Semiparametric and nonparametric estimation; Cross-sectional dependence; Decomposition;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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