Government production of investment goods and aggregate labor productivity

In this paper, I estimate the impact on aggregate labor productivity of hav ing government, rather than private industry, produce investment goods. Thi s policy was pursued to varying degrees by Egypt, India, and Turkey, among others. The policy has a large impact because there is both a direct effect (it lowers productivity in the investment sector) and a secondary effect ( it lowers the economy-wide capital stock. per worker), I estimate that this policy alone reduced Egypt's aggregate productivity by 30% and accounted f or 20% of Egypt's aggregate labor productivity gap with the United States d uring the 1960s. (C) 2001 Elsevier Science B.V. All rights reserved.