PUBLIC CAPITAL AND TOTAL FACTOR PRODUCTIVITY

This paper examines the impact of the stock of public capital on outpu t levels and productivity growth rates in the U.S. The analysis is bas ed on the estimation of parameters in a translog profit function. Pric es of intermediate goods are introduced into a quasiproduction functio n for value-added. Recently developed econometric techniques for deali ng with nonstationary time series are used in the estimation. We find that the services of public capital are an important part of the produ ction process, and that about 40 percent of the productivity decline i s explained by a fall in the public capital-labor ratio.