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The “Public Capital Hypothesis”: The Case of Germany

Published online by Cambridge University Press:  17 August 2016

Klaus Conrad  and
Helmut Seitz
Klaus Conrad
Affiliation:
Universität Mannheim
Helmut Seitz
Affiliation:
Universität Mannheim
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Summary

According to the “public capital hypothesis” public investment crowds in private investment by increasing the rate of return to private capital. The present paper uses an extended cost function with public capital included as an unpaid fixed factor of production to examine the impact public capital has on the private economy. Using a panel of four highly aggregated sectors of the West German Economy, it is shown, that the provision of public capital raises the demand for private capital, as suggested by the public capital hypothesis. In addition, it is shown that public infrastructure capital contributes to the productivity of the private economy.

Résumé

Résumé

Selon l'«hypothèse du Capital Public«, l'investissement public exerce un effet d'attraction sur l'investissement privé en augmentant sa rentabilité. Le présent article utilise une version extensive d'une fonction de coût dans laquelle le capital public est intégré sous la forme d'un facteur fixe de production gratuit en vue d'examiner son impact sur le secteur privé. En utilisant un échantillon de 4 secteurs fortement agrégés de l'économie ouest-allemande, on montre que la présence de capital public augmente la demande de capital privé, confirmant ainsi l'hypothèse du capital public. De plus, on montre que le capital public d'infrastructure contribue à la productivité de l'economie privé.

Keywords

E6H3H4E6H3H4
Type
Part II: Productivity Slowdown and Innovative Activity
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 58 , Issue 3-4: Output and Employment Fluctuations , 1992 , pp. 308 - 327
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1992 

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Footnotes

(*)

We acknowledge receipt of valuable comments by three anonymous referees on an earlier version of the paper.

References

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