Public investment, convergence and productivity growth in European regions

This paper estimates an augmented growth model to analyse the contribution of public investment to
productivity growth for European regions. The empirical model accounts for the accumulation of public
capital, the stock of infrastructure and the creation of knowledge by the government sector, alongside other
growth determinants, as institutions, education, and business R&D. Convergence dynamics are also
explored. Data include 273 NUTS2 European regions from 27 countries from 1999 to 2018. The empirical
evidence presented suggests that public investment is positively associated with productivity growth and
complementarities with business investment are in place. Furthermore, returns on both types of investments
are larger in the regions of the Southern periphery, flagging policy space for further public and private
productive spending. No significant effect is found for the stock of infrastructure. Public R&D has an
indirect impact on productivity growth through the mediating effect of business R&D, while institutional
quality is a horizontal determinant of growth.