The Role of Public Infrastructure Investment: its Development and Contributions to Economic Growth

Title: The Role of Public Infrastructure Investment: its Development and Contributions to Economic Growth
Authors: Parent , Matthew
Date: 2012-10-15
Abstract: Canada's response to the recent global economic crisis reflected that of many Western nations - one that centred on fiscal stimulus packages with large funds allocated towards infrastructure development. This paper uses modified-Wald tests in bivariate autoregressive models to examine whether factor inputs, specifically public fixed capital investment and other determinants of economic growth, are complements (or substitutes). National accounting data is used at the provincial, national, and international levels to test for complementary relationships. Test results could not produce any robust evidence of any one-way or dual causal relationships in the levels or growth rates among any of these subsets. However despite no evidence of these short-run relationships, the Johansen cointegration test identifies long-run relationships between Canada's public and private investments, employment, and labour productivity. Furthermore the impact of Canadian public investment growth on output growth demonstrates a dual causal relationship, running positively from investment to output, but negatively in the reverse causation. This study supports the notion of functional finance in the Canadian context, in that increases to public infrastructure growth contribute to increased output growth, but that increased output growth leads decreases in public investment growth. I conclude with an exploratory discussion involving the development of specific industries in a Kaldorian context, highlighting the shift of Canada's industry sectors from manufacturing to natural resources, which may indeed be a source of our declining productivity growth.
CollectionÉconomie - Mémoires // Economics - Research Papers