BALANCED GROWTH AND PUBLIC CAPITAL - AN EMPIRICAL-ANALYSIS

The balanced growth restrictions implied by the neoclassical growth mo del imply that output, the private capital stock and the public capita l stack share the same stochastic trend. We analyse the postwar US dat a on real output, real private capital stock and real public capital s tock and find that the balanced growth restrictions cannot be rejected by the data. Removing the common stochastic trend from each series al lows the estimation of output elasticities that is free from the spuri ous regression problem. The results support Aschauer's (1989) claim th at, at the margin, public capital is more productive than private capi tal.