Public capital stock and economic growth: an analysis of the Spanish economy

The objective of this paper is to evaluate the short- and long-term effects of public investment in infrastructure on aggregate output, labour and capital formation in the private sector. The problem is analysed in a dynamic multivariate framework, which allows for explicit consideration of feedback among all the variables. This approach generalizes the current literature, which relies on a single-equation model to estimate production functions and implicitly assumes the absence of feedback relationships. For the Spanish economy, our results suggest positive long-term effects of public investment on the private sector variables.