The Productive Effects of Public Infrastructure: What Do the Data Say?

Abstract

This paper provides an overview of the current debate on the effects of public infrastructure on productivity. The early aggregate studies based on restrictive functional forms of production functions provide controversial estimates of the impact of public infrastructure on economic growth and productivity. Recent studies that have been based on flexible models of cost or profit functions and use disaggregated data find that public capital contributes significantly to productivity growth. The rates of returns to public capital are quite high. It seems that public capital is less than optimal on most of the economies and this calls for further public investment in infrastructure. There is also a scope for private investment in some infrastructure projects. The forms of infrastructure projects, where private firms would like to invest, may vary from economy to economy depending of their circumstances.