Public Capital and Economic Growth: Key Issues for Europe

Governments can try to improve future living conditions in various ways: they can, for example, stimulate private (foreign) investment, spend more on education and health programs to enhance human capital, preserve the environment, or add to the stock of infrastructure. According to the World Bank (1994), public capital represents the “wheels”—if not the engine—of economic activity. Input-output tables show, for example, that telecommunications, electricity, and water are used in the production process of nearly every sector, while transport is an input for every commodity. However, the World Bank (1994, p. 19) also concludes that “infrastructure investment is not sufficient on its own to generate sustained increases in economic growth.”