Public Infrastructure and Private Output: an Application to Greece

Recently, it has been announced by economic policy makers, that Greece’s ambition for the 21 century is to become a business and transport hub, linking south-east Europe with EU markets. Undoubtedly, public infrastructure plays a determinant role in fulfilling these expectations and plans. Nevertheless, the impact of public infrastructure on Greek economy has rarely been systematically examined at an empirical level. In this paper we take into account some of the points of the underlying criticism in the literature to empirically investigate the possible links between public infrastructure and Greek productivity. More precisely, we use cointegration techniques and vector autoregression (VAR) analysis in order to derive the long run relationship and the short run dynamics between public infrastructure and private output. Our results indicate that a one percent increase in public infrastructure enhances the productivity of the Greek industrial sector by 0.14 percent.