Public infrastructure capital, scale economies and returns to variety



4.891

(1.599)

-0.075

(-1.220)

0.595

(8.383)***

-0.160

(-1.458)

0.008
(0.701)

0.993

0.851

0.070

6.114

-0.075

0.595

-0.219

0.007

0.993

0.851

0.070

(1.582)

(-1.211)

(8.382)***

(-1.452)

(0.661)

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

Table 18 Infrastructure effects on the equilibrium number of firms (augmented regression): Athens panel
for sectors, 1982-1991

Dependent Variable: ln of Number of Manufacturing Establishments_____________________________________________________________________________

Constant

1.778
(0.395)

lnK

0.205
(2.862)***

lnL

0.525
(8.039)***

lnG(total)

-0.234
(-1.281)

lnG(prod)

lnG(social)

time
trend
-0.011
(-0.774)

Adjust.
R2
0.988

SSE

1.783

SE

0.103

3.008

0.203

0.528

-0.292

-0.006

0.988

1.768

0.103

(0.739)

(2.839)***

(8.113)***

(-1.742)*

(-0.432)

-2.868

0.210

0.521

-0.040

-0.026

0.987

1.800

0.104

(-0.629)

(2.917)***

(7.948)***

(-0.208)

(-1.830)*

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

Table 19 Infrastructure effects on the equilibrium number of firms (augmented regression): Rest of
Greece panel for sectors, 1982-1991

Dependent Variable: ln of Number of Manufacturing Establishments

Constant

5.147
(1.379)

lnK

-0.082
(-1.287)

lnL

0.585
(8.504)***

lnG(total)

-0.186
(-1.315)

lnG(prod)

lnG(social)

time
trend
0.022
(1.588)

Adjust.
R2
0.991

SSE

1.208

SE

0.083

4.667

-0.081

0.585

-0.169

0.022

0.991

1.208

0.083

(1.360)

(-1.283)

(8.500)***

(-1.295)

(1.570)

6.520

-0.082

0.585

-0.254

0.022

0.991

1.206

0.083

(1.476)

(-1.296)

(8.522)***

(-1.418)

(1.702)*

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

It seems that public infrastructure does not affect the equilibrium number of firms, at least in
this model context. There are, however, examples of other research focused on firm entry and exit in
Greek industrial sector, in which public capital appears to be a significant factor of firm creation.
These results, as well as comments, criticisms and potential extensions of this model are discussed in
the next section.

5 Conclusions

The proliferation of empirical research on the effects of public capital investment on the
private sector of the economy has provided a substantial body of work. This is based mainly on
production function analysis, or alternatively on the duality theory and cost function approach. These
approaches can be useful in assessing the role of infrastructure and can be used as a tool for the
planning of public investment policies. Having said that, there still remains the problem of an
analytical theoretical basis outlining the mechanisms by which public capital generates, or not, these
specific effects. A few models by which these mechanisms can be sketched have recently become
available. But few of them have been empirically tested for any verification or refutation of their
theoretical assumptions.

27



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