Role of efficiency and composition of public infrastructure: implications for growth and employment

ABSTRACT

This paper contributes to theoretical endogenous growth literature, establishing the role of efficiency of public infrastructure use by private/public production sectors and composition of public infrastructure (i.e. proportion of public infrastructure directed towards productivity-enhancing purposes) in growth-process. For a small open economy with private/public production sectors, at free trade, increases in efficiency of public infrastructure use by private/public production-sector increase balanced growth rate, ratios of economy-wide aggregate-level of (i) private to public capital and (ii) employment to public – capital, under restrictions on efficiency – composition mix of public infrastructure and the free trade price, given other model-parameters; i.e. effect of efficiency-increase depends on public infrastructure composition. Thus, assessment of macroeconomic implications of employment should consider efficiency and composition of public infrastructure.

KEYWORDS:

• Endogenous growth
• employment
• efficiency and composition of public-infrastructure
• free-trade

JEL CLASSIFICATION:

• O41
• E24
• D21
• H54

Acknowledgments

The authors gratefully acknowledges Prof. Ajitava Raychaudhuri, Former Professor, Jadavpur University; Prof. James West, Moravian University, Discussant; the organizers, and participants of Second International Conference on “Future of Employment: Challenges and Opportunities” – FECO 2023 organized by Symbiosis School of Economics, Symbiosis International (Deemed University), Pune, India from 18-19 January, 2023, and the anonymous referee of the journal Macroeconomics and Finance in Emerging Market Economies for their valuable comments. However, usual disclaimer applies.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Press Information Bureau, Government of India, Ministry of Finance: Summary of Union Budget 2020–21 (https://pib.gov.in/newsite/PrintRelease.aspx?relid=197837) and Press Release (https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1778566).

2. A Summary of South East Asian Infrastructure Spending: Outlook to 2025 (https://www.pwc.com/sg/en/capital-projects-infrastructure/assets/cpi-sea-infrastructure-spend-summary-201405.pdf)

3. For analysis of balanced growth under autarky, see Appendix A.

4. Equation (5)(5) $\mathit{r}=\mathit{p}.{\theta }_c^{1-\alpha }.{\mu }^{1-\mathit{\alpha }}.f_c^{\prime }\left(k_c\right)$(5) : profit-maximizing condition of C-sector. Equation (6)(6) $\mathit{r}={\theta }_x^{1-\beta }.{\mu }^{1-\mathit{\beta }}.f_x^{\prime }\left(k_x\right)$(6) : the profit-maximizing condition of X-sector. Equation (7)(7) $\mathit{k}\left(\mathit{t}\right)=k_c\left(\mathit{t}\right)+k_x\left(\mathit{t}\right)+k_g\left(\mathit{t}\right)$(7) : full-employment condition. Equation (9)(9) $\mathit{k}=\frac{k_c}{\mathit{\alpha }}+\frac{k_x}{\mathit{\beta }}$(9) : modified government budget constraint. Equation (13)(13) $\dot{m}=\mathit{m}\left(\mathit{r}-\mathit{\rho }-{\theta }_g^{1-\varphi }.f_g\left(k_g\right)\right)$(13) : movement of ratio of consumption-expenditure relative to the government-expenditure on public infrastructure. Equation (14)(14) $\dot{k}=\mathit{k}\left(\mathit{r}-\frac{m}{k}-{\theta }_g^{1-\varphi }.f_g\left(k_g\right)\right)$(14) : movement of economy-wide private-public capital ratio.

5. The proof for $J_2^{\prime }\left(k_x\right)>0$ is shown in Appendix D.

Additional information

Notes on contributors

Jayeeta Roy Chowdhury

Jayeeta Roy Chowdhury is a PhD Research Scholar (UGC SRF) at Department of Economics, Jadavpur University, Kolkata, India. She completed her M. A. in Economics from Department of Economics, Jadavpur University. Her research interest includes growth theory, international trade and development.

Arpita Ghose

Arpita Ghose is currently Professor, Department of Economics and Chair-Professor (Honorary), Planning and Development Unit, Jadavpur University (NITI Aayog), Government of India; former Dean, Faculty of Arts; Head, Department of Economics, Jadavpur University and Guest-Professor, Department of Economics, University of Calcutta. A PhD from Indian Statistical Institute, she has worked in the area Dynamic Disequilibrium Macro models, and authored three books, edited two books and two of her edited books are forthcoming from renowned international publishers like Springer; published more than 50 papers in reputed national/international journals/chapters in edited books, in the area of Computable General Equilibrium Models, Productivity and Efficiency analysis using Data Envelopment Approach, Stochastic Frontier Models, Applied Time Series Analysis and Economies of Education and Health; completed 10 projects funded by renowned national and international-institutions like DFID-UNCTAD-Government of India for Jadavpur University’s Trade Research Capacity building Programme/Department of Health and Family Welfare, Government of West Bengal/UGC/ICSSR, among others; presented research papers and chaired sessions at multiple international and national conferences, organized many national and international seminars/conferences/workshops. Under her supervision, students have been awarded Ph.Ds. She has research-interest in studies on Econometrics, Macroeconomics, Productivity, Efficiency, Empirical issues relating to International Trade/Applied Development Economics and Social Sector.