The Impact of Public Capital, Human Capital, and Knowledge on Aggregate Output
IMF Working Papers, September 1, 2008
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Bibliographic details
- Authors: Frederick L Joutz, Yasser Abdih
- Published: September 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451870763.001
Summary findings
- The paper investigates the impact of public capital on private sector output by testing and estimating an aggregate production function for the U.S. economy over the postwar period augmented to include the stock of public capital as an additional factor input.
- Using patent applications to proxy for knowledge/technology stocks and adjusting labor hours for changes in human capital or skill, the authors find a positive and significant long run effect of:
- public capital,
- private capital,
- skill-adjusted labor, and
- technology/knowledge
on private sector output.
- Public capital "accounts for about half of the post-1973 productivity slowdown."
- Public capital "only plays a minor role in the partial recovery of labor productivity growth since the mid 1980s."
- "The largest contribution to that (partial) recovery comes from the knowledge stock and human capital."
Methodology
- Estimation approach: Johansen's (1988 and 1991) multivariate cointegration analysis.
- Proxies and adjustments:
- Knowledge/technology stocks proxied by patent applications.
- Labor hours adjusted for changes in human capital or skill.
- Model: aggregate production function for the U.S. economy augmented with the stock of public capital as an additional factor input.
Subjects and keywords
- Subject: Human capital, Labor, Productivity, Stocks, Vector autoregression
- Keywords: capital stock, constant returns to scale, null hypothesis, WP
Policy-relevant implications
- Public capital has a sizable long-run association with private sector output and was a major contributor to the post-1973 productivity slowdown.
- Recovery of labor productivity since the mid 1980s is driven more by knowledge accumulation and improvements in human capital than by public capital investment.
- Policy emphasis on fostering knowledge/technology accumulation (as proxied by patenting activity) and increasing human capital/skills may yield larger productivity payoffs than focusing solely on public capital restoration.
Frederick L Joutz, and Yasser Abdih. "The Impact of Public Capital, Human Capital, and Knowledge on Aggregate Output", IMF Working Papers 2008, 218 (2008).