Spillover effects of public capital formation: Evidence from the Spanish regions

We investigate the existence of regional spillover effects of public capital in Spain. We estimate VAR models for Spain and its seventeen regions. Estimation results suggest that the aggregate effects of public capital cannot be captured in their entirety by the direct effects for each region from public capital installed in the region itself. When spillover effects are also considered, however, the disaggregated effects are very much in line with the aggregate effects. Ultimately, the aggregate effects are due in almost equal parts to the direct and spillover effects of public capital. This establishes the relevance of spillovers in Spain. © 2003 Elsevier Science (USA). All rights reserved.