This equation can be either > 0, or = 0, or < 0. The sufficient condition in order to have
M> 0 is that aφ -ф„ < 016.
xn
Holtz-Eakin and Lovely concluded that, in this model’s context, the effects of public capital on the
manufacturing sector “are far from direct and clear-cut. Reductions in fixed costs will have far
different effects than reduction in variable cost, and the effects of the latter are quite complex”
(Holtz-Eakin and Lovely 1996, p.115).
Similar were their results for the impact of infrastructure on the consumption goods sector.
The production of consumption goods would increase (decrease) due to the release (acquirement) of
factor bundles from the manufacturing sector. Equations 25 and 31 show that if fixed costs (F) are
increased, then the volume of consumption goods will drop. In contrast, an increase of variable costs
(v) would have results that are unclear.
3 Infrastructural impacts on the non-manufacturing sector of the Greek economy
As already mentioned, Holtz-Eakin has written extensively on how infrastructure affects the
productivity of the private sector (Holtz-Eakin 1992a, 1993a, and Holtz-Eakin and Schwartz 1995)
He was also one of the prominent figures in the camp advocating that public capital does not have any
significant impact on private output. However, all this body of work was restricted to the
investigation of this single potential ‘channel’ of influence (the direct impact via a production
function) between infrastructure and development.
Holtz-Eakin and Lovely (1996) in contrast have used the theoretical model presented in the
previous section for the study of potentially alternative channels of influence in the relationship.
Namely, they calibrate their model for the examination of infrastructure effects on the consumption
goods sector (as the majority of the existing empirical research has studied the effects on the
manufacturing sector), as well as on of how public capital affects the range of varieties (the range of
intermediate goods). For the study of the latter they used the number of manufacturing establishments
as a proxy.
The following analysis tries to utilise the theoretical model of Holtz-Eakin and Lovely for the
investigation of such alternative channels in the Greek context, placing special emphasis on the spatial
dimension. However, there are significant obstacles in undertaking this task, due to limitations of the
available data, both at the regional and the national level.
This section assesses the impact of infrastructure on the non-manufacturing sector, which
includes both the primary and tertiary sectors. In the next section the analysis focuses on the
16 Holtz-Eakin and Lovely (1996) point out that this is exactly the opposite of the sufficient condition for F .
11