Causality analysis between public capital and economic growth

Public capital has been considered to be the wheels of a nation's or a region's economic activity. The reverse effects, the contributions of economic growth to public capital, are also worth analysing. Non-structural approaches in econometrics were implemented for the Australian economy using yearly data for the period from 1960 to 2008. A co-integration test was carried out to investigate whether there are long-term equilibrium relationships between each pair among public capital, private output, private capital and labour. The Ganger causality test was further employed to determine whether public capital contains useful information to predict a private production variable and vice versa. The results will provide historical evidence for Australia's federal and regional governments to assist in estimating the effects among these production variables, in particular, the effect of infrastructure spending on gross domestic product. © 2009 WIETE.