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We are grateful to the editor and the three referees for valuable comments. We also thank Peter Pedroni, Felix Rioja and the seminar participants at the 11th Southeastern International/Development Economics Workshop for helpful discussions. This work benefited from the financial support of the U.K. Department for International Development (DFID). The views expressed in this study are the sole responsibility of the authors and should not be attributed to the International Monetary Fund, its Executive Board, or its management. Data is available here.
On the conceptual side, Turnovsky (2011) takes seriously the differentiated roles that public and private capital play along the transitional dynamics of a standard growth model. In a later contribution, Chatterjee and Turnovsky (2012) develop a model in which public capital is both an engine of growth and a determinant of the distributions of wealth, income, and welfare. Along the same lines, Agénor (2010) proposes a theory of long-run development based on public infrastructure as the main engine of growth. Also, in a recent book, Agénor (2012) discusses several potential channels through which public capital may contribute to long-run per-capita income growth. Apart from the traditional direct productivity-channel, which hinges upon the presence of gross complementarity between public infrastructure services and private inputs in goods production, Lowe et al. (2018) extend the Caselli and Feyrer (2007) cross-country estimation of the Marginal Product of Capital (MPK) by distinguishing between the public and private MPK.
We have also calculated public and private capital stocks using WEO investment series denominated in local currencies. This investment dataset is highly correlated with our dataset and produces coefficient estimates that are close to the baseline estimates presented in Section 3. Both the alternative dataset and associated results are available upon request.
Hulten and Wykoff (1981) estimate the depreciation rates based on used asset prices. Fraumeni (1997) extends the range of assets and categorizes them into private and public assets. Gupta et al. (2014) apply different depreciation rates of private and public capital across income groups.
In our data, public investment is measured as gross fixed capital formation in the public sector. This allows for the use of comparable data availability for a large number of countries. In contrast to the existing literature that focuses on infrastructure investment (e.g. Dobbs et al., 2013), our public investment and capital stock account for a relatively larger share of GDP.
The Levenberg-Marquardt method is a popular technique to solve nonlinear least square problems. It is a combination of two minimization algorithms: the Gauss-Newton method and the gradient descent method.
The public-private capital elasticity of substitution (ES) is calculated as 1/(1 – θ). One standard deviation confidence intervals in brackets are derived using the delta method.