Public investment in infrastructure in a simple growth model

Glomm, Gerhard; Ravikumar, B.

doi:10.1016/0165-1889(94)90052-3

Cited by 321 publications

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“…See e.g. Futagami et al (1993), Glomm and Ravikumar (1994), Turnovsky (1997), and more recently Agénor (2011), who provides a detailed survey of the theoretical literature on this topic. The empirical literature is even more extensive.…”

Section: Introductionmentioning

confidence: 99%

Productive government spending and its consequences for the growth–inequality tradeoff

Getachew

Turnovsky

2015

Research in Economics

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This paper investigates the effects of productive government spending on the relationship between growth and inequality in an economy subject to idiosyncratic production shocks and heterogeneous endowments. Assuming lognormal distributions, we derive tractable closed form solutions describing the equilibrium dynamics. We show how the effect of government investment on the equilibrium dynamics of both inequality and growth depends crucially upon the elasticity of substitution between public and private capital in production. This has important consequences for the growth-and welfaremaximizing rates of government investment. Finally, we supplement our theoretical analysis with numerical simulations, calibrated to approximate the productive characteristics of a real world economy. With the empirical evidence strongly supporting the complementarity between public and private capital, our simulations suggest that conclusions based on the commonly employed Cobb-Douglas production function may be seriously misleading.Key words: Government investment; Idiosyncratic shocks; Growth; Inequality JEL Classification: D31, O41 Revised versionJune 2015*The paper has benefited from comments received on earlier versions from seminar participants at the University of Durham and the University of Pretoria. We also thank Santanu Chatterjee for useful suggestions. Research for this paper was carried out while Getachew was visiting the University of Washington in the Fall of 2013. Turnovsky"s research was supported in part by the Van Voorhis endowment at the University of Washington.**Corresponding author: sturn@u.washington.edu 1 IntroductionThe role of public investment in infrastructure as a source of economic growth continues to be widely debated in both developing and advanced economies, with different economies adopting different policy options. Several emerging-market countries including India, China, and Brazil have undertaken extensive public investment, to which their high growth rates of recent years may at least in part be attributed. In contrast, several European countries have reduced public spending, as they have pursued austerity measures intended to deal with concerns related to their rising debt levels.Contemporaneously with these diverse policies toward public investment, we have witnessed increasing income inequality, both in emerging markets and in most OECD countries. This raises the important question that we address in this paper, namely the relationship between public investment directed toward growth enhancement and its consequences for income inequality.Interest in the relationship between public investment, output, and growth has a long history, dating back to Arrow and Kurz (1970), who examined it in the context of a neoclassical economy.Beginning with Barro (1990), an extensive literature has evolved addressing the issue in an endogenous growth framework, with a general consensus that government spending on infrastructure can yield significant productivity gains and thus enhance growth. See e.g. F...

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Section: Introductionmentioning

confidence: 99%

Productive government spending and its consequences for the growth–inequality tradeoff

Getachew

Turnovsky

2015

Research in Economics

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“…In order to analyse these arguments, we ascribe the environmental externality to partial perception of the individual impact on environmental quality corresponding to partial rivalry in congestion models, see Glomm and Ravikumar (1994), Fisher and Turnovsky (1998) or Eicher and Turnovsky (2000). Individuals recognize environmental quality to be influenced in part by themselves and in part by the rest of the society.…”

Section: Introductionmentioning

confidence: 99%

Green Attitude and Economic Growth

Ott

Soretz

2016

Environ Resource Econ

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We analyse the interdependence between green attitude and equilibrium development of environmental quality in an endogenous growth model. Individuals take only part of their impact on pollution into account, hence there is a negative externality of capital accumulation on environmental quality. Increasing wealth or increasing pollution enhance green attitude and reduce the externality, because individuals care more about the environment if their income is higher or if pollution is more obvious. The time path of pollution as well as the evolution of equilibrium growth are shown to depend crucially on the determinants of green attitude. If green attitude improves with increasing wealth, e.g. as a consequence of an increase in environmental education, the economy converges to the sustainable growth path and in the long run, also the optimal level of environmental quality is realized. In contrast, pollution remains at a suboptimally high level if individual attitude towards the environment is influenced by pollution itself, that means, if individuals care the more about environmental issues the worse environmental quality. JEL-Classification: O1, O4, Q2, Q5

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“…In addition to the previously mentioned differences with respect to the model in Barro (1990), our model differ from Barro (1990), Glomm and Ravikumar (1994) and Agénor (2012) in two relevant respects: (1) the absence of congestion; our decision to ignore congestion effects is mostly made for the sake of simplicity and tractability, as the incorporation of congestion effects would not change our qualitative results. Meanwhile, it should be recognized the existence of congestion effects and, moreover, their relevance to thorough and coherent discussions about public spending; (2) we use a dual economy model (while most models on public spending are one-sector models), which allows us to address structural change issues and investigate how infrastructure (and its variety) affects each sector differently.…”

Section: Introductionmentioning

confidence: 87%

“…Lewis (1979), in his Nobel Prize lecture, stressed that "growth requires physical infrastructure and trained manpower even when its purpose is only to export primary produce". In recent contributions, Barro (1990), Turnovsky and Fisher (1995), Agénor (2012), andGlömm andRavikumar (1994), for instance, theoretically investigate the positive effects of public spending on infrastructure.…”

Section: Introductionmentioning

confidence: 99%

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Competitive exchange rate and infrastructure in a macrodynamic of economic growth

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Public investment in infrastructure in a simple growth model

Cited by 321 publications

References 5 publications

Productive government spending and its consequences for the growth–inequality tradeoff

Productive government spending and its consequences for the growth–inequality tradeoff

Green Attitude and Economic Growth

Competitive exchange rate and infrastructure in a macrodynamic of economic growth

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