Do government expenditures increase private sector productivity?: Cross-country evidence

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.