On the substitution of private and public capital in production

Abstract

Most macroeconomic models assume that aggregate output is generated by a specification of the production function with total physical capital as the key input. This implicitly assumes that private and public capital stocks are perfect substitutes. In this article, we test this hypothesis by estimating a nested CES production function while the two types of capital are considered separately with labor as inputs. The estimate is based on our newly developed dataset of public and private capital stocks for 151 countries over a period of 1960 to 2014, according to version 9 of the Penn World Table. , with the point estimate of the elasticity of substitution estimated closely around 3

This work is part of the ‘Macroeconomics in Low Income Countries’ program

Quote

Zidong An, Alvar Kangur and Chris Papageorgiou (2019) On the substitution of private and public capital in production. IMF Working Paper No. 19/232

On the substitution of private and public capital in production

Posted on November 1, 2019


Source link

About Chris McCarter

Check Also

Business-level effects of the Russian power cut

Raphaël Lafrogne-Joussier, Andrei Levchenko, Julien Martin, Isabelle Méjean April 24, 2022 Editor’s note: This column …