EIB Papers Volume 13. n°1/2008 - European Investment Bank

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The ratio of private capital to GDP declined in half of the sample during 1960-2001. 64 Volume13 N°1 2008 EIB PAPERS In 2001, Greece had the highest private capital ratio while Ireland had the lowest ratio. In half of the countries the private capital ratio declined, while in the other half the ratio increased during the period under consideration. Figure 1. Government and private capital relative to GDP in percent, 1960-2001 150 100 50 0 400 300 200 100 0 Government capital Australia Austria Belgium Private capital Australia Austria Belgium Canada Canada Denmark Denmark Source: Data from Kamps (2006) Finland Finland France France Greece Greece Iceland Iceland Ireland Italy Japan 1960 2001 Ireland Italy Japan 1960 2001 Netherlands Netherlands New Zealand New Zealand Norway Norway Portugal Portugal Spain Spain Sweden Sweden Switzerland Switzerland United Kingdom United Kingdom United States United States
Also in terms of using adequate econometric methods, the study by Kamps (2004) is by far the best in this line of research. Therefore, we take this study as our starting point, using the same public and private capital stock data and a similar method. However, in contrast to Kamps (2004) and most other studies, we use hours worked as the indicator of labour input. For various reasons this is a better proxy than the number of employees. First, employees may work different hours. Furthermore, in many countries hours worked per employee have decreased over time. As a consequence, the number of hours worked and the number of employees may have a low correlation, as shown in Table 2. The data on hours worked and GDP are from the Total Economy Database of the Groningen Growth and Development Centre. 5 Table 2. Correlation of number of employees and number of hours worked, 1960-2001 France -0.71 Ireland 0.73 Denmark -0.56 Greece 0.76 Belgium -0.25 Netherlands 0.76 United Kingdom -0.09 Switzerland 0.78 Austria -0.05 Japan 0.91 Italy -0.02 Portugal 0.96 Sweden 0.06 Iceland 0.98 Norway 0.55 United States 0.99 Finland 0.67 New Zealand 1.00 Spain 0.68 Canada 1.00 Germany 0.70 Australia 1.00 Source: Own calculations based on data provided by Groningen Growth and Development Centre Table 3 shows the results for the unit root tests of the variables we use. We apply the ADF test that states “presence of a unit root” as the null hypothesis, and the KPSS test by Kwiatkowski et al. (1992) that has stationarity as the null; in both tests a constant and a trend are included in the test equations. It follows from Table 3 that most variables are integrated of order one. 6 We therefore proceed by testing for all countries whether the series concerned are cointegrated following the approach suggested by Johansen (1991). For each country 7 we specify a four-variable VAR model including the public net capital stock, the private net capital stock, the number of hours worked, and real GDP. Following Kamps (2004), the number of lags to be included has been chosen on the basis of the Schwarz (1978) information criterion. 8 Table 4 shows the outcomes of the maximum eigenvalue test for cointegration. 9 The table shows the probability that the null-hypothesis is true. It is assumed that the cointegrating vector(s) and the VAR include a constant. For those countries that have one or more trend stationary variables, the cointegrating vector also includes a trend. A robustness check, in which it is assumed that all series contain a unit root, does not alter the choice of the appropriate number of cointegrating vectors. 5 See www.ggdc.nl. Kamps (2004) used OECD data for GDP and therefore had various missing observations. 6 The hypothesis that the capital stocks are I(2) is clearly rejected. 7 Germany was dropped because data revisions in 1990 made it impossible to estimate a sensible model. 8 When for a given lag structure there is still residual autocorrelation in the model we increase the number of lags (up to a maximum of three) until there is no autocorrelation left in the residuals. 9 The trace statistic and the maximum eigenvalue statistic sometimes yield conflicting results. Following Johansen and Juselius (1990), we examine the estimated cointegrating vector and base our choice on the interpretability of the cointegrating relations. In contrast to most other studies, we use hours worked and not the number of employees as a measure of labour input. EIB PAPERS Volume13 N°1 2008 65
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Preface This year the European Inve
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Infrastructure investment, growth a
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Page 34 and 35: A common feature for the new member
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Page 48 and 49: There have been marked differences
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Page 96 and 97: While distorting taxes lead to a we
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High GDP growth in the new member s
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Further productivity gains, includi
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Table 2. Business constraints perce
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Where fiscal positions were sound,
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Despite progress, infrastructure de
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Table 7. Infrastructure indicators
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EU funds provide additional resourc
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Various empirical studies confirm t
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In some new member states there is
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PPPs offer new opportunities to fin
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Strong legal and institutional fram
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Additional fiscal reporting - even
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Fiscal adjustment and reforms need
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EIB Papers Volume 13. n°1/2008 - European Investment Bank

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