Efficiency‐adjusted public capital, capital grants, and growth

• DOI: http://doi.org/10.1111/rode.12638
• Date: 01 February 2020
• Author: Ernesto Crivelli
• Published date: 01 February 2020

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wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2020;24:254–268.

© 2019 John Wiley & Sons Ltd

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INTRODUCTION

The link between infrastructure investment and growth has come to prominence in public debate,

prompted in part by the increased awareness of the relatively large efficiency gaps in public capital

spending in emerging economies. Figure 1a illustrates this link for a sample of emerging and advanced

Received: 24 July 2017

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Revised: 14 September 2018

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Accepted: 11 October 2019

DOI: 10.1111/rode.12638

REGULAR ARTICLE

Efficiency-adjusted public capital, capital grants,

and growth

ErnestoCrivelli

International Monetary Fund, 700 19th

Street, NW, Washington, DC 20431, USA

Correspondence

Ernesto Crivelli, International Monetary

Fund, 700 19th Street, NW, Washington,

DC 20431, USA.

Email: Ecrivelli@imf.org

Abstract

A debate on whether capital grants, and especially European

Union (EU) funds, actually contribute to growth has gained

prominence lately. This article empirically assesses the re-

lationship between the quality of public investment, capital

grants, and growth in a sample of 43 emerging and peripheral

economies over 1991–2015. To this end, the contribution of

public capital to growth is estimated using efficiency-ad-

justed public capital stock series, which reflects the quality

of public investment management institutions. In addition,

the determinants of effective public investment are analyzed.

The results suggest that capital grants contribute positively

to effective public investment, and the latter is significant in

explaining variations in economic growth. Finally, the arti-

cle illustrates the impact of raising EU funds absorption on

potential growth in emerging and peripheral EU countries.

KEYWORDS

capital grants, economic growth, effective public investment, EU funds,

public capital stock

JEL CLASSIFICATION

F35; F36; H54; O11; O40

The International Monetary Fund retains copyright and all other rights in the manuscript of this article as submitted for

publication.