Published March 2004, Atlantic Economic Journal 321 Public Capital and Small Firm Performan.pdf

This Draft: 1 October 2003 Published: March 2004, Atlantic Economic Journal 32:1 Public Capital and Small Firm Performance Kevin Christ* Rose-Hulman Institute of Technology Richard Green** University of the Incarnate Word ABSTRACT: Previous research on the role of public capital (infrastructure) in private production has emphasized potential complementarities between public and private capital at an aggregate level. Presumably such effects, if they exist, arise from benefits enjoyed by individual units of production. Because of the potential for them to be location-specific or capital constrained, it is conceivable that small businesses may benefit disproportionately from public capital. Tests using financial data for 871 small firms from 1992 to 1996 indicate a positive and statistically significant elasticity between private labor productivity and the level of public capital in the area where the firms are located. Such a positive elasticity provides further evidence that public and private capital are complementary inputs into production, and has important policy implications. JEL CLASSIFICATION: H4, H5, M13 KEY WORDS: Public Capital, Public Investment, Small Business, Entrepreneurship ________________________ * Department of Humanities and Social Sciences, Rose-Hulman Institute of Technology, 5500 Wabash Avenue, Terre Haute, IN 47803. Tel. 812-872-6226. Fax: 812-877-8909. E-mail: kevin.christ@rose-hulman.edu ** School of Business and Applied Arts and Administration, University of Incarnate Word, UPO #318, 4301 Broadway, San Antonio, Texas 78209. Tel. 210-829-3191. E-mail: greenr@universe.uiwtx.edu This research has been supported through a grant from the Kauffman Center for Entrepreneurial Leadership, the support of which the authors gratefully acknowledge. 1. Introduction Regions and states exhibit important differences when it comes to the apparent health of their business environments