PRODUCTIVITY OF THE PUBLIC INFRASTRUCTURAL INVESTMENTS

The results of the empirical research into the effects of public infrastructural investments on the growth of productivity that can be found in literature are not uniform. The first works initiated by Aschauer in 1989 were based on the Cobb-Douglas production function and indicated a certain elasticity of the product with respect to public fund investment ranging between 0.30-0.50. This approach, however, was criticised, both for its reasoning logic and for the econometric method it had used. The main criticisms included the following: - Firstly, the estimates of the public capital may be incorrect and the term ‘infrastructure’ is a vague one with no agreed definition. - Secondly, the conversion of the production function into the cost function, as well as an attempt to estimate that function for regions within a country implies a much lower return from the public capital. - Thirdly, there are a number of econometric issues, such as eg. the direction of causation and the occurrence of a spurious regression. - Fourthly, the long-term supply effects of infrastructural investments may be exactly opposite to the short-term demand effects. - Fifthly, the way in which infrastructure is managed and priced may be as important as the provision of infrastructure. The conclusion is that the public infrastructure, although very important for the development, may only be regarded as one of many production factors and only in combination with other factors, such as the human capital or knowledge can they lead to a substantial growth in productivity