Unveiling the Impact of Public Capital on Economic Growth: A Global Perspective

Abstract

This study investigates the impact of public capital on economic growth, alongside the contributions of human capital and international trade, using panel data from 81 high, low, and middle-income countries from 1980 to 2020. Utilizing advanced panel data methodologies, including Pooled OLS and Fixed Effects models, the study constructs a public capital index through Principal Component Analysis, incorporating six physical capital components of infrastructure. The results demonstrate a positive and significant relationship between public capital and economic growth, with human capital, international trade, financial development, domestic investment, and government expenditure also showing positive effects. In contrast, population growth hinders economic growth, while inflation exhibits a negative yet statistically insignificant relationship. These findings highlight the critical role of public capital, human capital, and international trade in driving long-term economic development, offering vital insights for policymakers aiming to foster sustainable economic growth. The study provides a comprehensive framework for understanding key economic growth drivers and provides policy recommendations to prioritize infrastructure investment, education, and trade. Future research could explore the dynamic interactions between public capital and other economic variables, investigate the sectoral impacts of public capital, and examine its role in mitigating income inequality and poverty.