Public Capital, Growth and Welfare

Public Capital, Growth and Welfare: Analytical Foundations for Public Policy

Copyright Date: 2013
Pages: 280
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  • Book Info
    Public Capital, Growth and Welfare
    Book Description:

    In the past three decades, developing countries have made significant economic and social progress, from improved infant mortality rates to higher life expectancy. Yet, 1.3 billion people continue to live in extreme poverty in the developing world, leading policymakers to place a renewed emphasis on policies that could promote economic efficiency and the productivity of the poor. How should these policies be sequenced and implemented to spur growth? Would a large, front-loaded increase in public infrastructure investment yield the desired growth-promoting effect?

    Taking a rigorous look at this kind of investment and its outcomes, this book explores the different channels through which public capital in infrastructure may affect growth and human welfare, and develops a series of formal models for understanding how these channels operate. Bringing together a vast amount of research in one unifying framework, Pierre-Richard Agénor finds that in considering investment in infrastructure, a variety of externalities need to be factored into analytical models and introduced in policy debates. Lack of access to infrastructure not only constrains the expansion of markets and private investment, it may also hinder the achievement of health and education targets. Ease of access, conversely, promotes innovation and empowers women by allowing them to reallocate their time to productive uses.

    Laying a solid foundation of economic facts and ideas,Public Capital, Growth, and Welfareprovides a comprehensive look at the critical role of public capital in development.

    eISBN: 978-1-4008-4539-2
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-xii)
  3. Introduction and Overview
    (pp. 1-10)

    Over the past three decades, significant economic and social progress has been achieved in the developing world. Infant mortality rates have been halved, primary school enrollment rates have doubled, and in some countries life expectancy has increased by more than 20 years. During the 1990s alone, per capita income increased on average by 2.6 percent.

    However, progress has been uneven. In some countries, the rapid spread of HIV/AIDS has literally erased many of the gains achieved in increasing life expectancy. And although theproportionof people in extreme poverty fell slightly as a whole over the past decade, theabsolute...

  4. 1 Basic Channels
    (pp. 11-48)

    Macroeconomists typically emphasize three basic channels through which public capital may affect growth: a directproductivity and cost effecton private production inputs, acomplementarity effecton private investment, and acrowding-out effecton private spending through the financial system.

    This chapter begins by reviewing the evidence on all three effects. It then presents a basic OLG framework, with full capital depreciation, that accounts for the productivity effect. The equilibrium and the balanced growth path (along which key macroeconomic variables grow at a constant rate) are then derived, and the growth effects of public investment are examined, under alternative assumptions...

  5. 2 Public Capital and Education
    (pp. 49-71)

    A large strand of the literature on economic growth focuses on human capital, which is often broadly defined as consisting of the abilities, skills, and knowledge of individual workers.¹ In that perspective, it has been emphasized that human capital, very much like conventional economic goods, requires a variety of inputs to be produced. However, the impact of public capital on human capital accumulation, and more generally education outcomes, has only recently begun to receive much attention.

    This chapter begins with a review of the evidence on the link between public capital and education. It then extends the OLG model presented...

  6. 3 Public Capital and Health
    (pp. 72-110)

    The effect of health on economic growth has been the subject of much recent empirical and analytical research. A key premise of the literature is that good health enhances worker productivity and promotes growth. Accounting for health factors in models of economic growth is thus important for studies focusing on developing countries—particularly the low-income ones, where health indicators are the weakest. An important issue in that regard relates to the fact that the provision of health services, while complementary to other services at the microeconomic level, requires the use of public resources. At the macroeconomic level, there is therefore...

  7. 4 Public Capital and Innovation
    (pp. 111-131)

    Increased globalization, through the adoption and adaptation of preexisting technologies imported from more advanced countries, has led to a substantial acceleration in the pace of technological progress in developing countries. Imports of capital and intermediate goods—whose embodied technological knowledge allows domestic firms to employ more efficient production processes and to copy more advanced products—represented in 2002–04 between 6 and 13 percent of their GDP, compared to 5 and 9 percent in 1994–96 (see World Bank (2008c)). The easing of restrictions on foreign direct investment has also proved to be a powerful channel for technology diffusion; a...

  8. 5 Public Capital and Women’s Time Allocation
    (pp. 132-173)

    The role of women in promoting growth and development continues to occupy center stage in policy debates. As documented in a number of studies, gender inequality—measured in terms of access to education, health, formal sector employment, or income—remains a significant constraint to growth in many countries. On the one hand, the gender gap in educational attainment has gradually narrowed or moved in favor of women in some regions; and in many individual countries the gender gap inprimaryschool enrollment has almost disappeared. According to the United Nations (2010) for instance, in 2007 over 95 girls for every...

  9. 6 Public Capital and Poverty Traps
    (pp. 174-191)

    The previous chapters have established that improved access to infrastructure in low-income countries serves not only to increase factor productivity and reduce production costs but also to promote private capital formation, to improve education and health outcomes, to foster innovation, and to empower women by alleviating the constraints imposed on their time by household chores.

    This chapter focuses on the role that public capital may play in helping a poor country escape from a poverty trap, that is, a low-growth equilibrium. The focus of the discussion is on the nonlinearities that may characterize the benefits associated with public capital: for...

  10. 7 Research Perspectives
    (pp. 192-218)

    The previous chapters have documented and formally analyzed a variety of channels, both old and new, through which public capital may affect growth. Various extensions, mostly technical in nature, were outlined at the end of some chapters. This chapter sets out a broader research agenda on the links among public capital, growth, and human welfare. Without being exhaustive, it considers the following areas: heterogeneous infrastructure assets, the political economy of government spending allocation, excludable public goods, interactions between government debt and public capital accumulation in the presence of fiscal rules, spatial and regional dimensions of public capital, infrastructure and trade,...

  11. Lessons for Public Policy
    (pp. 219-224)

    In recent years there has been a renewed effort by economists to understand how public capital affects economic growth and human welfare. In addition to reviewing the microeconomic and macroeconomic evidence, this book has attempted to provide a unified set of theoretical models that capture some of the key channels identified in recent research and studied how public policy related to infrastructure investment affects growth and human development. By using models based on explicit microeconomic decision rules, the book’s objective was to provide rigorous analytical foundations for public policy.

    Small analytical models, of course, are not designed to provide detailed...

  12. References
    (pp. 225-246)
  13. Index
    (pp. 247-252)