Public capital and economic growth: A convergence approach

This paper estimates dynamic effects of public capital on output per capita . Based on an open economy growth model, I derive a version of the income c onvergence equation augmented with public capital. This equation is estimat ed using panel data of United States and Japanese regions. Sensible results are obtained when public capital is disaggregated into components. In both countries, the infrastructure component of public capital turns out to hav e significantly positive effects. The implied elasticity of output with res pect to infrastructure is somewhere around 0.1 to 0.15. This suggests a mod est contribution of infrastructure to postwar growth of the two countries.