Abstract
This paper investigates on the impact of public capital on production in the Netherlands from a regional perspective. Based on a simple growth accounting exercise, the results indicate that investment in public capital contributed 17–21% to economic growth in the Netherlands between 1971 and 2000. In addition, the regression estimates suggest that a one percentage point increase in public capital accumulation increased economic growth by 0.37 percentage points, but this effect could be as high as 0.82 percentage points in the periphery of the Netherlands. We find that total factor productivity was one of the most important determinants of regional economic growth. In the period 1971–2000, the contribution of total factor productivity growth to economic growth was between 39 and 52% based on the growth accounting method. In addition, regression analysis suggests that 27–65% of the variation in economic growth could be explained by total factor productivity growth. These results suggest that public capital accumulation did contribute to regional economic growth in the Netherlands, but that other factors, such as technological change and innovation, may be more important to achieve long-term economic growth.
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Notes
- 1.
We ignore other specifications of the production function. In particular, we do not incorporate spillover effects (see Boarnet, 1998), capital utilization (for the Netherlands, see Daal et al. 2006), and other factors of production such as human capital (see Mankiw et al. 1992). In addition, we do not investigate whether different types of public investment have a different impact on production (for the Netherlands, see Sturm and De Haan 1995; Sturm et al. 1999). Moreover, we do not use the translog production function, the VAR approach (i.e. no lagged effects), or the cost function approach.
- 2.
In accordance with Daal et al. (2006), we estimate the production function in first differences since the time series seem to follow a unit root process. In particular, the standard Levin–Lin panel unit root test (ADF with trend) indicated that we cannot reject the null hypothesis of unit in GDP, (private and public) capital, and labour (p-values of 0.87, 0.99, 0.31, and 0.14, respectively). We do not discuss cointegration of these time series in further detail. Evidence of such a cointegration relationship is mixed (see Daal et al., 2006).
- 3.
The North of the Netherlands consists of the NUTS 2 regions Groningen, Friesland, and Drenthe. The East comprises Overijssel, Gelderland, and Flevoland. The South consists of Limburg, Noord-Brabant, and Zeeland. The West of the Netherlands consist of the provinces Utrecht, Noord-Holland, and Zuid-Holland.
- 4.
We corrected the annual regional economic statistics, called in Dutch the “Regionaal Economische Jaarcijfers,” for the revisions in the National Accounts.
- 5.
Instead, it is possible to calculate the contributions of the factors of production on an yearly level and, subsequently, to report the yearly average contribution per factor of production. However, in some years there were outliers in these ratios. Hence, we use average growth to calculate the contributions.
- 6.
We find an F-value of 0.01 in the panel regression and F-values between 0.01 and 2.81 with respect to the regional estimates. Furthermore, we also estimated standard production functions (i.e. no difference in the effect of public and private capital). In this case, the joint effect of capital was 0.83 (national), 1.15 (North), 0.58 (East), 0.68 (South), and 0.77 (West). The effect of labour was 0.25 (national), −0.69 (North), 0.75 (East), 0.64 (South), and 0.49 (West). These coefficient estimates were significant at the 5% significance level except for the labour coefficient from a national perspective and in the North of the Netherlands.
- 7.
The F-value is 0.03 in the panel regression and the F-values are between 0.19 and 5.28 with regard to the regional estimates. Only in case of the estimates for the North and East of the Netherlands the equality of the coefficients on the factors of production are rejected, which may be the result of the negative impact of labour (private capital) on economic growth in the North (East).
- 8.
We find an F-value of 0.10 in the panel regression and F-values between 1.59 and 2.87 with respect to the regional estimates. Nevertheless, the estimates in, for instance, column 1 remain virtually unchanged if we impose constant returns to scale. Only the estimate of private capital decreases to about 0.34.
- 9.
With regard to the three production factors, we obtain an F-value of 535 in the panel regression and F-values between 13 and 26 with respect to the regional estimates. The joint significance test with respect to public and private capital resulted in an F-value of 16 in the panel regression and F-values between 6 and 20 with regard to the regional estimates.
- 10.
For an overview, see Oosterhaven and van Witteloostuijn (2008).
- 11.
This agreement was documented in “Kompas voor het Noorden.”
- 12.
This policy was formalized in the policy memorandum “Pieken in de Delta.”
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Acknowledgements
The authors would to thank Evgueni Poliakov for useful comments.
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© 2011 TNO (Dutch Organization for Applied Scientific Research)
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Manshanden, W., Dröes, M.I. (2011). The Productivity of Public Capital in the Netherlands: A Regional Perspective. In: Jonkhoff, W., Manshanden, W. (eds) Infrastructure Productivity Evaluation. SpringerBriefs in Economics, vol 1. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-8101-1_5
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