Public investment in transportation infrastructures and economic performance in...

• Author(s): Pereira, Alfredo ; Andraz, Jorge Miguel
• Date: 2002
• Persistent ID: http://hdl.handle.net/10400.1/4709
• Origin: Sapientia - Universidade do Algarve
• Subject(s): Infrastructures; Economic performance; Portugal
• Document Type: Part of book or chapter of book
• Language: English

Description

This paper uses a VAR approach to investigate the effects of aggregate and disaggregate measures of public investment in transportation infrastructures on private investment, employment, and output in Portugal. Estimation results suggest that public investment in transportation infrastructures crowds in private investment and employment and, therefore, has a strong positive effect on output. Indeed, we estimate that one euro invested in public investment increases output in the long-term by 9.5 euros. This figure suggests that public investment pays for itself 3.3 times in the form of tax revenues over the life span of the public capital asset. Furthermore, this figure corresponds to a rate of return of 15.9%, which is clearly higher than the rate of return expected on private investment activities. A close look at the effects of different types of public investment is very informative, since it shows which types of public investments are the most productive. In terms of marginal productivities, the highest effects on private investment come from public investment in ports, airports and national roads. In terms of job creation, the highest effects come from public investment in ports, municipal roads, and national roads. Finally, in terms of the effects on output the largest effects come from investment in ports followed by national roads, municipal roads, airports, and railroads. The results in this paper are very important from a public policy perspective. This is because they suggest that public investment in transportation infrastructures has been a powerful instrument to promote long-term growth and that the strategy followed by the Portuguese authorities of investing in public infrastructures isjustified both from a long-term development perspective as well as from a public budgetary perspective.