To read the full version of this content please select one of the options below:

Public investments, productivity and economic growth: A cross-state study of selected public expenditures in the United States

Olga Murova (Department of Agricultural and Applied Economics, Texas Tech University, Lubbock, Texas, USA)
Aman Khan (Department of Political Science, Texas Tech University, Lubbock, Texas, USA)

International Journal of Productivity and Performance Management

ISSN: 1741-0401

Publication date: 13 February 2017

Abstract

Purpose

The purpose of this paper is to use stochastic frontier analysis (SFA) to estimate the efficiency of public investments and their impact on economic growth in the USA using panel data. Results of the study show highly significant and positive relationships between gross state product (GSP) and expenditures on education, transportation, health, welfare, and public safety (police and fire), and negative but significant relationships between output and employment in health care and public safety services. Inefficiencies in the study are measured using per capita tax revenue and time. Tax revenue has a very minimal positive and significant effect on efficiency, while time inversely relates to efficiency.

Design/methodology/approach

The present study uses SFA to investigate the efficiency of government expenditures in five service sectors – education, transportation, health, welfare, and public safety (police and fire), using recent data and economic trends. The study hypothesizes that changes in the current levels of expenditures in the public sector have a significant impact on the aggregate economy, as measured by GSP. The study uses GSP as the dependent (output) variable, and government expenditure on the five service sectors as the independent (input) variables.

Findings

Analysis of efficiency for individual states for all 21 years produced interesting results. Overall, the technical efficiency of the public sector was quite high. The average TE score across all years and all states was 0.878. This suggests that public sector operates at a relatively high efficiency level.

Originality/value

The current SFA model followed Battese and Coelli approach of estimating efficiency of public sectors in each state of the USA. It allowed estimation of policy impact on the overall efficiency. It was applied to macroeconomic panel data.

Keywords

Citation

Murova, O. and Khan, A. (2017), "Public investments, productivity and economic growth: A cross-state study of selected public expenditures in the United States", International Journal of Productivity and Performance Management, Vol. 66 No. 2, pp. 251-265. https://doi.org/10.1108/IJPPM-12-2015-0190

Publisher

:

Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited