Public infrastructure capital, scale economies and returns to variety

Such an approach was also used by Holtz-Eakin and Lovely in their empirical calibration of the model
(Holtz-Eakin et al. 1996).

The results for the regional panel, presented in table 4, reveal that public capital has a positive
impact on output per firm. This impact is substantial in magnitude (0.383) and is also statistically
significant. If total infrastructure is disaggregated into its productive and social components, it
appears that the effect of the former is much larger than that of the latter. Productive public capital
has a statistically significant coefficient of 0.352, while the respective magnitude for social
infrastructure is only 0.041 and statistically insignificant. In all three regressions the variable
representing the varieties of production, that is the number of manufacturing establishments, is
negative and statistically significant. The respective coefficients for the regressions for total,
productive and social infrastructure are -0.662, -0.654, and -0.654 respectively. This implies in turn,
an a (as equation 39 shows, the estimated coefficient is actually a-1) of 0.338, 0.346, and 0.346
degree of homogeneity respectively.

Table 4 Infrastructure effects on the scale of production: regional panel for total manufacturing, 1982-
1991

The findings for the sectoral panel of manufacturing for Greece as a whole are given in table 5.
Public capital appears to be statistically significant in all cases, and to have extremely high coefficients,
namely 0.709 for total infrastructure, 0.655 and 0.892 for the productive and social categories
respectively. The results for the establishments variable are, in all three regressions of this table,
negative and statistically significant. Actually, they are of the same magnitude (at three digit level),
that is -0.557, with a degree of homogeneity of 0.443. The infrastructure results certainly imply that
some of the industrial sectors are extremely sensitive to changes of public capital.

Table 5 Infrastructure effects on the scale of production: Greece panel for sectors, 1982-1991

*** Statistically significant at 1% level, ** Statistically significant at 5% level, * Statistically significant at 10% level

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