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

diminishing marginal returns. In the remainder of this section we will therefore examine our findings
in more detail.
Figure 3. Estimated long-run impact of public capital on output
3
2
1
0
-1
-2
-3
Ireland
Portugal
United Kingdom
Japan
Belgium
Spain
New Zealand
Netherlands
Note: The figure shows (per country) the estimated long run (semi) elasticity of output with respect to public capital calculated
as the response after 20 periods (as shown in Figure 2) divided by a one standard-deviation shock in public capital.
We examine whether there is a systematic relationship between our estimates of the long-run effect
of public capital on output for the various countries (as shown in Figure 3) and the
• Average of the public-capital-to-GDP ratio;
• Public-capital-to-private-capital ratio;
Italy
• Change in the public-capital-to-GDP ratio; and
• Variability in the public-capital-to-GDP ratio
Australia
in these countries measured over the same sample as the one used in our VAR estimates.
Denmark
Figure (4a) suggests that there is a negative relationship between the long-run impact of public
capital on output and the level of public capital. The negative slope of the regression line is in
accordance with the hypothesis that a higher public capital stock implies a lower impact of public
capital on output. However, the relationship is not significant. The estimated t-statistic is 0.94 (p =
0.359). In other words, the diversity in our sample with respect to the level of public capital is not
related to the diversity in our results for the long-term impact of public capital on output. Countries
for which we find a positive impact of public capital on output do not have a lower or higher capitalstock-to-GDP
ratio than those with a negative impact of public capital on output.
Austria
Sweden
Finland
Iceland
Switzerland
Canada
United States
Norway
France
Greece
Marginal returns to
a very high public
capital stock may be
diminishing.
EIB PAPERS Volume13 N°1 2008 71