Reexamination of the Productivity of Public Capital

Author Name MIYAGAWA Tsutomu  (Faculty Fellow, RIETI) /KAWASAKI Kazuyasu  (Toyo University) /EDAMURA Kazuma  (NISTEP)
Creation Date/NO. November 2013 13-J-071
Research Project Economic Impact of the Tohoku Earthquake: An analysis based on the Japan Regional Industrial Production Database
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This paper reexamines the effects of public capital on productivity growth at the regional level by using the Regional-Level Japan Industrial Productivity Database (R-JIP). When we estimate a production function including public capital in total factor productivity (TFP), we find positive and significant effects of public capital on productivity growth after the collapse of the bubble economy. As total public expenditures have decreased since the mid 1990s, our results imply that public investment after 1991 was allocated more efficiently than prior to 1990. However, the dispersion of the estimated rate of return on public capital and its Tobin's Q have expanded since 1991. This implies that the government has allocated public capital to rural areas more heavily than to urban areas. We also examine the effects of public investment on business investment by using the Manufacturer's Survey and the R-JIP. The estimation results show the positive effect of public investment on business investment.