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Do government expenditures increase private sector productivity? Cross‐country evidence

Reino Hjerppe (Government Institute for Economic Research, Helsinki, Finland)
Pellervo Hämäläinen (University of Turku, Turku, Finland)
Jaakko Kiander (Labour Institute for Economic Research, Helsinki, Finland)
Matti Viren (University of Turku, Turku, Finland Bank of Finland, Helsinki, Finland)

International Journal of Social Economics

ISSN: 0306-8293

Article publication date: 17 April 2007

Abstract

Purpose

To analyse productivity of public expenditures; especially to find out the effect of human capital investment on private sector productivity.

Design/methodology/approach

Several measures of public sector capital stock are constructed. These measures are used in testing the effects on private sector productivity. Empirical analysis makes use of cross‐country panel data and utilizes various panel econometric methods.

Findings

The main finding is that public sector capital has a positive impact on private sector productivity. Some evidence is provided to the hypotheses that also human capital that is generated within the public sector increases private sector productivity.

Research limitations/implications

There are a lot of measurement problems with the cross‐country data. Also the non‐stationarity of data creates some estimation problems. These may have some impact on the quantitative, but perhaps not on qualitative, nature of results.

Originality/value

Relatively few analysis have made in this area; this is true in particular with comparative (cross‐country) analysis.

Keywords

Citation

Hjerppe, R., Hämäläinen, P., Kiander, J. and Viren, M. (2007), "Do government expenditures increase private sector productivity? Cross‐country evidence", International Journal of Social Economics, Vol. 34 No. 5, pp. 345-360. https://doi.org/10.1108/03068290710741598

Publisher

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Emerald Group Publishing Limited

Copyright © 2007, Emerald Group Publishing Limited