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Public capital is the aggregate body of government-owned assets that are used as a means for productivity. [1] Such assets span a wide range including: large components such as highways, airports, roads, transit systems, and railways; local, municipal components such as public education, public hospitals, police and fire protection, prisons, and courts; and critical components including water and sewer systems, public electric and gas utilities, and telecommunications. [2] Often, public capital is defined as government outlay, in terms of money, and as physical stock, in terms of infrastructure.
In 1988, the U.S. infrastructure system including all public and private non-residential capital stock was valued at $7 trillion, an immense portfolio to operate and manage. [3] And according to the Congressional Budget Office, in 2004 the U.S. invested $400 billion in infrastructure capital across federal, state, and local levels including the private sectors on transportation networks, schools, highways, water systems, energy, and telecommunications services. While public spending on infrastructure grew by 1.7% annually between 1956 and 2004, it has remained constant as a share of GDP since early 1980s. [4] Despite the value and investment of public capital, growing delays in air and surface transportation, aging electric grid, an untapped renewable energy sector, and inadequate school facilities all have justified additional funding in public capital investment.
The American Society of Civil Engineers have continued to give low marks, averaging a D grade, for the nation's infrastructure since its inception of the Report Card in 1998. In 2009, each category of infrastructure varied from C+ to D− grades with an estimated $2.2 trillion of needed public capital investment. The aviation sector remains mired in continued delays in the reauthorization of federal programs and an outdated air traffic control system. One in four rural bridges and one in three urban bridges are structurally deficient. States are understaffed and underfunded to conduct safety inspections of dams. Texas alone has only seven engineers and an annual budget of $435,000 to oversee more than 7,400 dams. Electricity demand outpaces energy supply transmission and generation. Almost half of the water locks maintained by the U.S. Army Corps of Engineers are functionally obsolete. Drinking water faces an annual shortfall of $11 billion to manage their aging facilities and comply with federal regulations. Leaking pipes lose an estimated 7 billion US gallons (26,000,000 m3) of clean drinking water a day. Under tight budgets, national, state, and local parks suffer neglect. Without adequate funding, rail cannot meet future freight tonnage load. Schools require a staggering $127 billion to bring facilities to decent operating condition. Billions of gallons of untreated sewage continue to be discharged into U.S.’s surface waters each year. [5]
One of the most classic macroeconomic inquiries is the effect of public capital investment on economic growth. While many analysts debate the magnitude, evidence has shown a statistically significant positive relationship between infrastructure investment and economic performance. [1] U.S. Federal Reserve economist David Alan Aschauer asserted an increase of the public capital stock by 1% would result in an increase of the total factor productivity by 0.4%. [6] Aschauer argues that the golden age of the 1950s and 1960s were partly due to the post-World War II substantial investment in core infrastructure (highways, mass transit, airports, water systems, electric/gas facilities). Conversely, the drop of U.S. productivity growth in the 1970s and 1980s was in response to the decrease of continual public capital investment and not the decline of technological innovation. [1] Likewise, the European Union nations have declined public capital investment through the same years, also witnessing declining productivity growth rates. [6] A similar situation emerges in developing nations. Analyzing OECD and non-OECD countries’ real-GDP growth rates from 1960 to 2000 with public capital as an explanatory variable (not using public investment rates), Arslanalp, Borhorst, Gupta, and Sze (2010) show that increases in the public capital stock does correlate with increases in growth. However, this relationship depends on initial levels of public capital and income levels for the country. Thus, OECD countries witness a stronger positive link in the short term while non-OECD countries experience a stronger positive link in the long term. Hence, developing countries can benefit from non-concessional foreign borrowing to finance high-prospect public capital investments. [7]
Given this relationship of public capital and productivity, public capital becomes a third input in the standard, neoclassical production function:
where:
In this form, public capital has a direct influence on productivity as a third variable. Additionally, public capital has an indirect influence on multifactor productivity as it affects the other two inputs of labor and private capital. [9] Despite this unique nature, public capital investment, used in the production process of nearly every sector, is not sufficient on its own to generate sustained economic growth. [6] Thus, rather than the ends, public capital is the means. That is, instead of being seen as intermediate goods used as resources by businesses, public capital should be seen as goods which are used to make the final goods and services to consumers-taxpayers. [2] Note that public capital levels should not be too high that it leads to financing costs and high tax rates issues which will negate the positive benefits of such investments. [7] Moreover, infrastructure services carry the market-distorting features of pure, non-rival public goods; network externalities; natural monopolies; and the common resource problem such as congestion and overuse. [6]
Empirical models that attempt to estimate the public investment and economic growth link involve a wide variety including: the Cobb-Douglas production function; a behavioral approach cost/profit function which includes public capital stock; Vector Auto Regression (VAR) models; and government investment growth regressions. These models nonetheless contend with reverse causality, heterogeneity, endogeneity, and nonlinearities in trying to capture the public capital and economic growth link. [6] New Keynesian models, though, analyze the effect of government spending through the supply side rather than traditional Keynesian models that analyzes it through the demand side. Therefore, a temporary surge of infrastructure investment yields an expansion of output, and vice versa that dwindling infrastructure, like in the 1970s, hamper longer-term movement in productivity. [10] Furthermore, new research on regional growth (as opposed to national growth with GDP) shows a strong positive relationship between public capital and productivity. Both fixed costs and transport costs lower with expanded infrastructure in localities and the resulting cluster of industries. As a result, economic activity grows along its pattern of trade. [6] Therefore, the importance of regional clusters and metropolitan economies comes into effect.
Beyond economic performance, public capital investment yields returns in quality of life indicators such as health, safety, recreation, aesthetics, and leisure time and activities. In example, highways provide better access and mobility for increased discretionary time and recreational outlets; mass transit can improve air quality with reduced number of private vehicles; improved municipal waste facilities reduces toxic groundwater contamination and better green space aesthetics such as parks; expanded water facilities aids in health and sanitation and environment such as reducing odor and sewer overflows. [1] Furthermore, infrastructure adds to community ambience and quality of place with livelier downtowns, vibrant waterfronts, efficient land uses, compact spaces for commerce and recreation. [11]
On the contrary, inadequate public capital impairs quality of life and social well-being. Over-capacity landfills lead to groundwater contamination, having deleterious effects on health. Deficient supply and quality of mass transit services impacts transit-dependents on their access to opportunity and resources. Increasing congestion in airports and roadways causes loss of discretionary time and recreational activities. [1] The lack of efficient U.S. freight and passenger rail service will neither aid in handling the “perfect storm” of environmental and energy sustainability nor meet the global competitive need of transporting goods and services at heightened speeds and times. [12] Also, the continued loss of footing in clean energy technology will contribute to U.S.’s future loss of prosperity on the global stage in terms of the carbon footprint and economy. [11]
Perhaps the largest contribution to the public works system in the U.S. came out of President Franklin D. Roosevelt’s New Deal initiatives particularly the creation of the Works Progress Administration (WPA) in 1935. At a time of a deep economic crisis, the WPA employed at its peak 3.35 million unemployed heads-of-households to work in rebuilding the country. The program helped construct millions of roads, bridges, parks, schools, hospitals, and levees while also providing educational programs, childcare, job training, and medical services. The overall public spending level for the program, unprecedented at the time, was $4.8 billion ($76 billion in 2008 dollars), and helped to stimulate the economy through public works projects. [13]
Since then, the U.S. has contributed to other large infrastructure programs including the Interstate Highway System, 1956-1990, with a dedicated financing system through the gas tax and a matching contribution between federal government and states at 90% to 10%. [14] Also, the Environmental Protection Agency's (EPA) Clean Water Act of 1972 provided a public capital investment of $40 billion in constructing and upgrading sewage treatment facilities with “significant positive impacts on the Nation’s water quality.” [1] Considered by the National Academy of Engineering to be the greatest engineering achievement of the 20th century, the North American electric grid carries electricity over 300,000 miles (480,000 km) on high-voltage transmission lines across the U.S. Though currently facing aging facilities and equipment, this public capital investment has ubiquitously reached millions of homes and businesses. [15] [16]
Recently, the American Recovery and Reinvestment Act (ARRA) is another example of large public capital investment. Of the $311 billion in appropriations, about $120 billion are set aside for crucial investment in Infrastructure and Science and Energy. Some of ARRA's aims include smart grid technology, retrofitting of homes and federal buildings, automated aviation traffic control, advancing freight and passenger rail services, and upgrading water and waste facilities. [17]
Worldwide, transformative public capital investments are taking place. China’s ambitious rapid high-speed rail program is estimated to extend 18,000 km by 2020. By the end of 2008, the country had a fleet of over 24,000 locomotives, the most lines in the world, the fastest express train in service, and longest high-speed track in the world. [18] UK, Denmark, and other countries in northern Europe that surround the Baltic Sea and North Sea, continue to develop their rapid expansion of off-shore wind farms. [19] With continued expansion of terminals and connection to nation's comprehensive transport system, the Hong Kong International Airport is one of the largest engineering and architectural projects in the world. [20] In the last decade, Chile installed five combined cycle gas-turbined (CCGT) power plants to meet its nation's growing energy needs. [21]
The economy of Canada is a highly developed mixed-market economy. It is the 8th-largest GDP by nominal and 15th-largest GDP by PPP in the world. As with other developed nations, the country's economy is dominated by the service industry which employs about three quarters of Canadians. It has the world's third-largest proven oil reserves and is the fourth-largest exporter of crude oil. It is also the fifth-largest exporter of natural gas.
The economy of Israel is a highly developed free-market economy. The prosperity of Israel's advanced economy allows the country to have a sophisticated welfare state, a powerful modern military said to possess a nuclear-weapons capability with a full nuclear triad, modern infrastructure rivaling many Western countries, and a high-technology sector competitively on par with Silicon Valley. It has the second-largest number of startup companies in the world after the United States, and the third-largest number of NASDAQ-listed companies after the U.S. and China. American companies such as Intel, Microsoft, and Apple built their first overseas research and development facilities in Israel. Other high-tech multi-national corporations, such as IBM, Google, Hewlett-Packard, Cisco Systems, Facebook and Motorola have opened R&D centers in the country.
The economy of Trinidad and Tobago is the third wealthiest in the Caribbean and the fifth-richest by GDP (PPP) per capita in the Americas. Trinidad and Tobago is recognised as a high-income economy by the World Bank. Unlike most of the English-speaking Caribbean, the country's economy is primarily industrial, with an emphasis on petroleum and petrochemicals. The country's wealth is attributed to its large reserves and exploitation of oil and natural gas.
The United States is a highly developed mixed-market economy. It is the world's largest economy by nominal GDP, and the second-largest by purchasing power parity (PPP) behind China. It has the world's seventh-highest per capita GDP (nominal) and the eighth-highest per capita GDP (PPP) as of 2022. The U.S. accounted for 24.7% of the global economy in 2022 in nominal terms, and around 15.5% in PPP terms. The U.S. dollar is the currency of record most used in international transactions and is the world's foremost reserve currency, backed by the nation’s massive economy, stable government and legal framework, large U.S. treasuries market, advanced military, its role as the reference standard for the petrodollar system, and its linked eurodollar. Several countries use it as their official currency and in others it is the de facto currency.
Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of increase in the real gross domestic product, or real GDP.
A subsidy or government incentive is a form of financial aid or support extended to an economic sector generally with the aim of promoting economic and social policy. Although commonly extended from the government, the term subsidy can relate to any type of support – for example from NGOs or as implicit subsidies. Subsidies come in various forms including: direct and indirect.
A public utility company is an organization that maintains the infrastructure for a public service. Public utilities are subject to forms of public control and regulation ranging from local community-based groups to statewide government monopolies.
Infrastructure is the set of facilities and systems that serve a country, city, or other area, and encompasses the services and facilities necessary for its economy, households and firms to function. Infrastructure is composed of public and private physical structures such as roads, railways, bridges, tunnels, water supply, sewers, electrical grids, and telecommunications. In general, infrastructure has been defined as "the physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions" and maintain the surrounding environment.
Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production process, i.e. output per unit of input, typically over a specific period of time. The most common example is the (aggregate) labour productivity measure, one example of which is GDP per worker. There are many different definitions of productivity and the choice among them depends on the purpose of the productivity measurement and/or data availability. The key source of difference between various productivity measures is also usually related to how the outputs and the inputs are aggregated to obtain such a ratio-type measure of productivity.
The economies of Canada and the United States are similar because both are developed countries. While both countries feature in the top ten economies in the world in 2022, the U.S. is the largest economy in the world, with US$24.8 trillion, with Canada ranking ninth at US$2.2 trillion.
Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment. These two types of government spending, on final consumption and on gross capital formation, together constitute one of the major components of gross domestic product.
Gross fixed capital formation (GFCF) is a macroeconomic concept used in official national accounts such as the United Nations System of National Accounts (UNSNA), National Income and Product Accounts (NIPA) and the European System of Accounts (ESA). The concept dates back to the National Bureau of Economic Research (NBER) studies of Simon Kuznets of capital formation in the 1930s, and standard measures for it were adopted in the 1950s. Statistically it measures the value of acquisitions of new or existing fixed assets by the business sector, governments and "pure" households less disposals of fixed assets. GFCF is a component of the expenditure on gross domestic product (GDP), and thus shows something about how much of the new value added in the economy is invested rather than consumed.
The Development Bank of Southern Africa (DBSA) is a development finance institution wholly owned by the Government of South Africa. The bank intends to "accelerate sustainable socio-economic development in the Southern African Development Community (SADC) by driving financial and non-financial investments in the social and economic infrastructure sectors".
Access to at least basic water increased from 94% to 97% between 2000 and 2015; an increase in access to at least basic sanitation from 73% to 86% in the same period;
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Infrastructure-based economic development, also called infrastructure-driven development, combines key policy characteristics inherited from the Rooseveltian progressive tradition and neo-Keynesian economics in the United States, France's Gaullist and neo-Colbertist centralized economic planning, Scandinavian social democracy as well as Singaporean and Chinese state capitalism: it holds that a substantial proportion of a nation’s resources must be systematically directed towards long term assets such as transportation, energy and social infrastructure in the name of long term economic efficiency and social equity.
Hard infrastructure, also known as tangible or built infrastructure, is the physical infrastructure of roads, bridges, tunnels, railways, ports, and harbors, among others, as opposed to the soft infrastructure or "intangible infrastructure of human capital in the form of education, research, health and social services and "institutional infrastructure" in the form of legal, economic and social systems. This article delineates both the capital goods, or fixed assets, and the control systems, software required to operate, manage and monitor the systems, as well as any accessory buildings, plants, or vehicles that are an essential part of the system. Also included are fleets of vehicles operating according to schedules such as public transit buses and garbage collection, as well as basic energy or communications facilities that are not usually part of a physical network, such as oil refineries, radio, and television broadcasting facilities.
Science and technology in Kazakhstan – government policies to develop science, technology and innovation in Kazakhstan.
Crowding-in is a phenomenon that occurs when higher government spending leads to an increase in economic growth and therefore encourages firms to invest due to the presence of more profitable investment opportunities. The crowding-in effect is observed when there is an increase in private investment due to increased public investment, for example, through the construction or improvement of physical infrastructures such as roads, highways, water and sanitation, ports, airports, railways, etc. According to Post – Keynesian macroeconomics views, in a modern economy operating below capacity, government borrowings can increase demand by generating employment, thereby encouraging private investment, thus leading to crowding-in.
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