Public Capital and Regional Economic Growth: a Svar Approach for the Spanish Regions

Recently, a significant share of the empirical analysis on the impact of public capital on regional growth has used multivariate time-series frameworks based on vector auto regressive (VAR) models. Nevertheless, not as much attention has been dedicated to the analysis of the long-run determinants of regional growth processes using multi-region panel data and applying panel integration and co-integration techniques. This paper estimates the dynamic domestic effects of public infrastructures using a structural vector autoregressive (S-VAR) methodology for the Spanish regions. From a methodological point of view, the paper contains several features that can be viewed as a contribution to the existing empirical literature. First, the important issues of the stationarity of the data and the existence and estimation of cointegrating relationships in the long-run are addressed in the context of the analysis of panel data. Secondly, the long-run cointegrating production function is embedded within structural vector error correction (S-VEC) short-run models to produce consistent estimates of impulse responses, contrary to many researchers who have estimated unrestricted VAR models in levels or VAR models in first differences. The estimates reveal new results with respect to the previous empirical evidence. JEL classification: C32; E62; H54; R53 Keywords: Public Capital; Regional Growth; VAR methodology; Spain Public
Capital
and
Regional
Economic
Growth:
a
SVAR
Approach
for
the
Spanish
Regions