On the Substitution of Private and Public Capital in Production
The paper is based on a newly developed dataset on public and private capital stocks for 151 countries over a period of 1960-2014
Abstract
Most macroeconomic models assume that aggregate output is generated by a specification for the production function with total physical capital as a key input. Implicitly this assumes that private and public capital stocks are perfect substitutes. In this paper we test this assumption by estimating a nested-CES production function whereas the two types of capital are considered separately along with labor as inputs. The estimation is based on our newly developed dataset on public and private capital stocks for 151 countries over a period of 1960-2014 consistent with Penn World Table version 9. We find evidence against perfect substitutability between public and private capital, especially for emerging and LIDCs, with the point estimate of the elasticity of substitution estimated closely around 3
This work is part of the ‘Macroeconomics in Low-income countries’ programme
Citation
Zidong An, Alvar Kangur, and Chris Papageorgiou (2019) On the Substitution of Private and Public Capital in Production. IMF Working Paper No. 19/232
Link
On the Substitution of Private and Public Capital in Production