PUBLIC CAPITAL AND TOTAL FACTOR PRODUCTIVITY

This paper examines the impact of the stock of public capital on output levels and productivity growth rates in the U.S. The analysis is based on the estimation of parameters in a translog profit function. Prices of intermediate goods are introduced into a quasiproduction function for value-added. Recently developed econometric techniques for dealing with nonstationary time series are used in the estimation. We find that the services of public capital are an important part of the production process, and that about 40 percent of the productivity decline is explained by a fall in the public capital-labor ratio.