This article analyzes the effects of public capital formation on private sector performance in Spain. The analysis is conducted both at the aggregate level and the disaggregated sectoral level. The empirical results are based on VAR estimates using private output, employment, and investment, as well as public investment. This approach follows the conceptual argument that the analysis of the effects of public capital accumulation requires the consideration of dynamic feedback effects among the relevant variables. Estimation results at the aggregate level indicate that public capital crowds in private inputs and affects private output positively. In particular, 1 peseta invested in public capital generates in the long term 5.5 pesetas of private output. The positive effects of public capital formation can also be detected, although to different degrees, at the disaggregated level. The sector of services seems to gain the most in absolute terms. In relative terms, however, all sectors, except for agriculture, benefit in some way. The sector of services captures a disproportionate share of the benefits in terms of private capital formation while manufacturing and construction benefit disproportionately in terms of employment and output. These results also imply that public capital formation makes the sector of services more capital-intensive and the manufacturing sector more labor-intensive. © 2001 Elsevier Science Inc.
- Public investment
- Sectoral analysis