Public capital, regional productivity and spatial spillovers

This paper examines the impact of infrastructure on productivity in the various regions of Spain. Using the duality approach and panel data, we estimate the regional cost functions for the three main sectors of the economy for the period 1964-1991. We also estimate a production function with profit maximization restrictions and a production function with regional and temporal fixed effects. Public capital is included as an unpaid factor of production, and two separate variables are used to establish whether the different categories of public capital have varying effects on costs. Results show that public infrastructure noticeably reduces private costs and increases overall productivity. Finally, there is a study of the existence of spillover effects in transport infrastructure. Estimations suggest that such effects are of some relevance, a fact which may have serious implications for public policy on infrastructure