The Contribution of Local Public Infrastructure to Private Productivity and Its Political Economy: Evidence from a Panel of Large German Cities

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Achim Kemmerling, Andreas Stephan

In: Public Choice 113 (2002), 3-4, S. 403-424

Abstract

This paper proposes a simultaneous-equation approach to theestimation of the contribution of infrastructure accumulationto private production. A political economy model for theallocation of public infrastructure investment grants isformulated. Our empirical findings, using a panel of largeGerman cities for the years 1980,1986, and 1988, suggest thatcities ruled by a council sharing the State (`Bundesland')government's current political affiliation were particularlysuccessful in attracting infrastructure investment grants.With regard to the contribution of infrastructure accumulationto growth, we find that public capital is a significant factorin private production. Moreover, at least for the samplestudied, we find that simultaneity between output and publiccapital is weak; thus, feedback effects from output toinfrastructure are negligible.