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Size and composition of public investment, structural change and growth

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  • Giulia FELICE

Abstract

This paper develops an endogenous growth model with two private sectors, where the government provides, as pure public goods, both infrastructure investment, directly affecting the productivity of private capital in the `modern' sector, and a flow of intermediate goods, enhancing the productivity of the otherwise `labour intensive' sector. This economy displays perpetual growth whenever the share of public expenditure on intermediate goods is higher than that on infrastructure. Government productive expenditure affects the long-run growth rate both directly, through its size and composition, and indirectly, through `structural change', that is, its effect on sectoral employment composition. We study numerically the transition along which the structural adjustments take place. We single out the growth maximizing tax rate and public expenditure composition, which both depend on the effect of government intervention on the two sectors' employment shares

Suggested Citation

  • Giulia FELICE, 2009. "Size and composition of public investment, structural change and growth," Departmental Working Papers 2009-028, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano, revised 27 Dec 2011.
    • Handle: RePEc:mil:wpdepa:2009-028
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    More about this item

    Keywords

    Public Investment; Growth; Structural Change;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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