How to estimate the productivity of public capital ?

This paper proposes an evaluation of the main empirical approaches used in the literature to estimate the productive contribution of public capital stock to private factors productivity and growth. Our analysis is based on the replication of these approaches on pseudo samples generated using a stochastic general equilibrium model with endogenous public capital, built so as to reproduce the main long run relations observed on US postwar historical data. The results suggest that the production function approach may not be reliable to determine the macroeconomic returns of public infrastructures. Two sources of biases are identi…ed. The first one stems from the presence of a common stochastic trend shared by all non stationary inputs. In this case, we show that there is a spurious asymptotic constraint which leads to the equality between the public capital and the labor elasticities. Consequently, the production function approach largely over-estimates the productive contribution of infrastructures. The standard correction proposed in the literature, based on a specification in first differences of the production function, induces a fallacious inference on the public capital productivity.