The effects of public capital on the productivity of the Italian regions

Abstract

This article investigates the role played by public capital in increasing the productivity levels in Italy. For construction of the regional series for the public capital stock over the period 1996 to 2003, the study benefits from the use of the rich dataset on public expenditure, recently published by the Italian Ministry of Economy. We have estimated panel production functions with the inclusion of traditional factors and also intangible inputs like research and development (R&D) expenditure, human capital (HK) and social capital (SK). The results point out that public capital has a positive and significant effect on production. Moreover, the effects of all production factors vary considerably between the two macro-areas of the country, namely Centre-North and Mezzogiorno. More specifically, while private capital is more effective in the South, labour exhibits an elasticity much higher in the Centre-North with respect to the Mezzogiorno. The disaggregation of the public capital stock into functional categories indicates a significant different impact in the two macro-areas. In addition, when the analysis is carried out by distinguishing among government levels it turns out that the decentralized administrative bodies are much less efficient in the South in delivering public expenditure.

Public capital and institutions' quality in the Italian regions

“…The elasticity of labor is 0.6, while the total capital stock shows an elasticity of 0.38. With respect to previous studies on the Italian case covering the precrisis period (Marrocu & Paci, 2010) the estimated return appears higher for the capital input and lower for the labor input. The QI's variable exhibits the expected positive and significant elasticity.…”

“…In Italy, several contributions have estimated a positive impact of public capital on economic performance. Marrocu and Paci (2010) remarked a higher elasticity in the Northern regions, and Daniele (2009) showed similar results studying public expenditures. The role of public investments in Southern Italy has been analyzed by Papagni et al (2021), finding a positive impact only between 1951 and 1973.…”

“…In Italy, several contributions have estimated a positive impact of public capital on economic performance. Marrocu and Paci (2010) remarked a higher elasticity in the Northern regions, and Daniele (2009) showed similar results studying public expenditures.…”

“…The initial value of the capital stock in 1999, which represents the base for the series' reconstruction, is computed considering the annual mean value of the national total capital stock for 1996–1999. Then, we divide the national stock in the base year 1999 among the regions using the methodology in Gleed and Rees (1979), also used by Marrocu and Paci (2010). More specifically, the regional capital stock value is based on the regional share of investments (weight 0.75) and labor units (weight 0.25) in the preceding 4 years.…”

“…To this aim, we first set up a novel database on public capital at the regional level using the investment expenditures of the Extended Public Sector (Settore Pubblico Allargato, SPA) provided by Territorial Public Accounts (Conti Pubblici Territoriali, CPT). Following the methodology proposed in Marrocu and Paci (2010), we build the series on public capital stock for 21 NUTS2 Italian regions over the period 2000-2019, disaggregated by five levels of institutions responsible for the investments' implementation and by 29 economic sectors.…”