Convergence across Spanish Regions: New Evidence on the Effects of Public Investment

We examine the empirical relationship between public investment and per capita income growth in the Spanish regions over 1965-1997. Using a neoclassical growth model with public and human capital, a convergence equation is derived and estimated using panel data techniques. Besides providing evidence of conditional convergence, the results show a non-positive effect of productive-public investment on the rate of regional economic growth. The impact of public investment in education and health is not clear. Robustness checks addressing potential endogeneity and specification problems reaffirm our results. It is concluded that there are no simple recipes for effective regional investment policies.