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

Abstract

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.