Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia

ABSTRACT

In this paper, growth of per capita income can be exogenous and/or endogenous due to aggregate public infrastructure spillover. The deterministic Glomm and Ravikumar (1994) model is augmented in this paper to produce a stochastic growth counterpart which has useful time series implications. In particular, the model implies certain testable cointegration properties which have a bearing on the role of public capital and endogenous growth. The postulation of strict endogenous growth is tested empirically for Australia using a constructed annual data set for the period 1930/31 to 1990/91. This hypothesis is rejected as there is evidence of a long-run cointegrating relationship about a deterministic trend implying exogenous growth with public capital spillovers. Short-run impulse response analysis is performed using a reduce-form model incorporating the cointegrating equation as the error correction term. There is further short run evidence of the role for public capital accumulation in contributing to permanent increases in the levels of per capita income and private capital.