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The Impact of Public Infrastructure Capital on the Private Sector of the Netherlands: An Application of the Symmetric Generalized Mcfadden Cost Function

Author: JAN-EGBERT STURM
Published in PFM, Vol. 1 No. 2

This paper extends the symmetric generalized McFadden cost function by
incorporating public infrastructure capital as an unpaid fixed input, and estimates
the new function using Dutch data for the post-World War II period. Several
elasticities concerning public infrastructure are estimated in order to uncover the
productivity effects of public infrastructure. We conclude that the sheltered sector
of the Dutch economy has benefited from infrastructure investment. Experimenting
with several variations of the model reveals that this outcome is robust. However,
despite these unambiguous results, the relationship between private inputs and
public infrastructure is unclear because the private input elasticities of
infrastructure change sign during the estimation period.

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