IDEAS home Printed from https://ideas.repec.org/a/taf/jitecd/v13y2004i2p159-178.html
   My bibliography  Save this article

Is public infrastructure spending productive in the Mexican case? A vector error correction analysis

Author

Listed:
  • Miguel Ramirez

Abstract

This paper addresses the important question of whether public investment spending on economic infrastructure enhances economic growth in Mexico. It estimates a Cobb-Douglas production function that includes public infrastructure capital. Using cointegration analysis, the paper estimates a vector error correction model (VECM) for the 1995 - 99 period. The results suggest that there is a long-term stable relationship among the variables included in the VECM. The evidence also indicates that both public infrastructure spending and private capital formation have a positive and highly significant effect on the rate of output growth. Finally, the impulse response functions (IRF) and the variance decompositions (VDC) of the endogenous variables in the VECM suggest that the response of private capital to public infrastructure is positive while the reverse causation is not affirmed. From a policy standpoint, the findings call into question stabilization policies that disproportionately reduce public infrastructure to meet targeted reductions in the fiscal deficit (JEL, O1, O47, O54).

Suggested Citation

  • Miguel Ramirez, 2004. "Is public infrastructure spending productive in the Mexican case? A vector error correction analysis," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(2), pages 159-178.
    • Handle: RePEc:taf:jitecd:v:13:y:2004:i:2:p:159-178
    DOI: 10.1080/0963819042000218700
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/0963819042000218700
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/0963819042000218700?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    2. Luiz R. de Mello Jr., 1997. "Foreign Direct Investment in Developing Countries: A Selective Survey," Studies in Economics 9701, School of Economics, University of Kent.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
    5. Ramirez, Miguel D., 1998. "Does public investment enhance labor productivity growth in Chile? A cointegration analysis," The North American Journal of Economics and Finance, Elsevier, vol. 9(1), pages 45-65.
    6. Moguillansky, Graciela, 1996. "The macroeconomic context and investment: Latin America since 1980," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    7. Cardoso, Eliana, 1993. "Private Investment in Latin America," Economic Development and Cultural Change, University of Chicago Press, vol. 41(4), pages 833-848, July.
    8. Khan, Mohsin S. & Reinhart, Carmen M., 1990. "Private investment and economic growth in developing countries," World Development, Elsevier, vol. 18(1), pages 19-27, January.
    9. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    10. Rosales V., Osvaldo, 1996. "Economic policy, institutions and productive development in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    11. W. Robert & J. Alexander, 1994. "The investment-output ratio in growth regressions," Applied Economics Letters, Taylor & Francis Journals, vol. 1(5), pages 74-76.
    12. Hanson, Gordon H., 1994. "Antitrust in post-privatization Latin America: An analysis of the Mexican airlines industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 34(Supplemen), pages 199-216.
    13. Miguel D. Ramirez, 1998. "Does Public Investment Enhance Productivity Growth in Mexico? A Cointegration Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 24(1), pages 63-82, Winter.
    14. Ram, Rati, 1996. "Productivity of public and private investment in developing countries: A broad international perspective," World Development, Elsevier, vol. 24(8), pages 1373-1378, August.
    15. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
    16. Rudiger Dornbusch & Alejandro Werner, 1994. "Mexico: Stabilization, Reform, and No Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 253-316.
    17. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Karim, Azreen & Noy, Ilan, 2015. "The (mis) allocation of public spending in a low income country: Evidence from disaster risk reduction spending in Bangladesh," Working Paper Series 4194, Victoria University of Wellington, School of Economics and Finance.
    2. Vaqar Ahmed & Ahsan Abbas & Saira Ahmed, 2013. "Public infrastructure and economic growth in Pakistan: a dynamic CGE-microsimulation analysis," Working Papers MPIA 2013-01, PEP-MPIA.
    3. Ahmed, Vaqar & Abbas, Ahsan & Ahmed, Sofia & Zeshan, Muhammed, 2012. "Public Infrastructure and Economic Growth in Pakistan: A Dynamic CGE- microsimulation Analysis," Conference papers 332289, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Gaurav Aakar & Vaibhav Agarwal & Varun Chotia, 0. "Assessing the Impact of Public Infrastructure Investment on Economic Performance: the Case of India," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 20(65), pages 137-152, September.
    5. Ram Pratap Sinha, 2021. "Indebtedness, Fiscal Discipline and Development Spending – A Non-parametric Approach," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 13(2), pages 147-173, June.
    6. Macdonald, Ryan, 2008. "An Examination of Public Capital's Role in Production," Economic Analysis (EA) Research Paper Series 2008050e, Statistics Canada, Analytical Studies Branch.
    7. Nihal Bayraktar & Blanca Moreno-Dodson, 2018. "Public Expenditures And Growth In A Monetary Union: The Case Of Waemu," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 6(1), pages 107-132.
    8. Karim, Azreen & Noy, Ilan, 2015. "The (mis) allocation of public spending in a low income country: Evidence from disaster risk reduction spending in Bangladesh," Working Paper Series 19263, Victoria University of Wellington, School of Economics and Finance.
    9. Duran-Fernandez, Roberto & Santos, Georgina, 2014. "Road infrastructure spillovers on the manufacturing sector in Mexico," Research in Transportation Economics, Elsevier, vol. 46(C), pages 17-29.
    10. Aswini Kumar Mishra & Kunapareddy Narendra & Bibhu Prasad Kar, 2013. "Growth And Infrastructure Investment In India: Achievements, Challenges, And Opportunities," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 58(196), pages 51-70, January –.
    11. Torres Preciado, Víctor Hugo & Polanco Gaytán, Mayrén & Manzanares Rivera, José Luis, 2010. "Diferencias en el ingreso per cápita regional e infraestructura de transporte en México [Differences in per capita regional income and transport infrastructure in Mexico]," MPRA Paper 28081, University Library of Munich, Germany.
    12. Dan Lupu & Mihai Bogdan Petrisor & Ana Bercu & Mihaela Tofan, 2018. "The Impact of Public Expenditures on Economic Growth: A Case Study of Central and Eastern European Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(3), pages 552-570, February.
    13. Shi, Hao & Huang, Shaoqing, 2014. "How Much Infrastructure Is Too Much? A New Approach and Evidence from China," World Development, Elsevier, vol. 56(C), pages 272-286.
    14. Moritz Cruz & Armando Sánchez‐Vargas, 2022. "Government spending and the exchange rate: Exploring this relationship in Mexico using a cointegrated system of equations," Review of Development Economics, Wiley Blackwell, vol. 26(1), pages 587-605, February.
    15. Mark Setterfield, 2015. "Time variation in the size of the multiplier: a Kalecki-Harrod approach," Working Papers 1522, New School for Social Research, Department of Economics, revised Jan 2017.
    16. Karim, Azreen & Noy, Ilan, 2020. "Risk, poverty or politics? The determinants of subnational public spending allocation for adaptive disaster risk reduction in Bangladesh," World Development, Elsevier, vol. 129(C).
    17. Nihal Bayraktar & Blanca Moreno-Dodson, 2015. "How Can Public Spending Help You Grow? An Empirical Analysis For Developing Countries," Bulletin of Economic Research, Wiley Blackwell, vol. 67(1), pages 30-64, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Miguel Ramirez, 2002. "Public capital formation and labor productivity growth in Mexico," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 30(4), pages 366-379, December.
    2. Ramirez, M.D., 2009. "Public Capital Formation and Labor Productivity Growth in Argentina," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(1).
    3. Ramirez, Miguel D., 2008. "Are Foreign and Public Capital Productive in the Mexican Case? A Panel Unit Root and Panel Cointegration Analysis," Working Papers 49, Yale University, Department of Economics.
    4. Miguel D. Ramirez, 2006. "Does Foreign Direct Investment Enhance Labor Productivity Growth in Chile? A Cointegration Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 32(2), pages 205-220, Spring.
    5. MD. Ramirez, 2000. "Public capital formation and labor productivity growth in Chile," Contemporary Economic Policy, Western Economic Association International, vol. 18(2), pages 159-169, April.
    6. Miguel D. Ramirez, 2020. "Public and Foreign Investment Spending in the Argentine Case. A Cointegration Analysis with Structural Breaks, 1960-2015," Bulletin of Applied Economics, Risk Market Journals, vol. 7(2), pages 49-76.
    7. Ramirez, Miguel D., 2006. "Is foreign direct investment beneficial for Mexico? An empirical analysis, 1960-2001," World Development, Elsevier, vol. 34(5), pages 802-817, May.
    8. Ali, Amjad & Ur Rehman, Hafeez, 2015. "Macroeconomic Instability and Its Impact on Gross Domestic Product: An Empirical Analysis of Pakistan," MPRA Paper 71037, University Library of Munich, Germany.
    9. Miguel Ramirez, 2007. "A Panel Unit Root and Panel Cointegration Test of the Complementarity Hypothesis in the Mexican Case: 1960–2001," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(3), pages 343-356, September.
    10. Miguel Ramirez, 2011. "Is Public Investment Productive in the Argentine Case? A Single Break Unit Root and Cointegration Analysis, 1960-2007," Working Papers 1101, Trinity College, Department of Economics.
    11. Miguel Ramirez, 2008. "What explains Latin America's poor investment performance during the 1980-2001 period?: a panel unit root analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(1), pages 1-15.
    12. Miguel Ramirez, 2013. "Is Foreign Direct Investment Beneficial for Mexico? A Cointegration Analysis, 1958-2010," Working Papers 1311, Trinity College, Department of Economics.
    13. Hugues Kouassi Kouadio & Landry Lewis Gakpa, 2021. "Financial Openness and Economic Growth in C?te d¡¯Ivoire: The Total Factor Productivity Channel," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 12(2), pages 138-149, April.
    14. Vinish Kathuria, 2019. "Growth and Investment: Testing for the Relationship for South Asian Countries," Millennial Asia, , vol. 10(3), pages 337-371, December.
    15. SBIA, Rashid & Al Rousan, Sahel, 2015. "Does Financial Development Induce Economic Growth in UAE? The Role of Foreign Direct Investment and Capitalization," MPRA Paper 64599, University Library of Munich, Germany.
    16. Muhammad Arshad Khan, 2007. "Foreign Direct Investment and Economic Growth: The Role of Domestic Financial Sector," PIDE-Working Papers 2007:18, Pakistan Institute of Development Economics.
    17. Marianna Belloc & Pietro Vertova, 2004. "How Does Public Investment Affect Economic Growth in HIPC? An Empirical Assessment," Department of Economics University of Siena 416, Department of Economics, University of Siena.
    18. Tan, Bee Wah & Tang, Chor Foon, 2011. "The dynamic relationship between private domestic investment, the user cost of capital, and economic growth in Malaysia," MPRA Paper 27964, University Library of Munich, Germany.
    19. Nader Nazmi & Miguel D. Ramirez, 1997. "Public And Private Investment And Economic Growth In Mexico," Contemporary Economic Policy, Western Economic Association International, vol. 15(1), pages 65-75, January.
    20. Ibrahim, Taofki, 2018. "Does Public Capital Influence Output Growth? Further Evidence from Nigeria," MPRA Paper 88635, University Library of Munich, Germany, revised 22 Jul 2018.

    More about this item

    Keywords

    Augmented Dickey-Fuller Test (ADF); Akaike Information Criterion (AIC); Schwartz Bayesian Criterion (SBC); Impulse Response Functions (IRF); Variance Decompositions (VDC);
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:jitecd:v:13:y:2004:i:2:p:159-178. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RJTE20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.