This paper studies the empirical relationships that exist between public investment and per capita income growth over the period 1965-1995 in the different Spanish regions. Using a neoclassical growth model with public and human capital, we derive a convergence equation, estimated through panel data techniques. Besides providing evidence in favour of the conditional convergence hypothesis, the results show the negative effect of productive public investment on the rate of regional economic growth. Also, both public investment in education, although not very significant, and public resources devoted to health investment have a positive correlation to the increment of per capita income. Alternative estimates to deal with the possible endogeneity of some variables as well as changes in the specification, confirm most of the previous results. A simple two-sector model of endogenous growth is presented to explain these results.

This paper studies the empirical relationships that exist between public investment and per capita income growth over the period 1965-1995 in the different Spanish regions. Using a neoclassical growth model with public and human capital, we derive a convergence equation, estimated through panel data techniques. Besides providing evidence in favour of the conditional convergence hypothesis, the results show the negative effect of productive public investment on the rate of regional economic growth. Also, both public investment in education, although not very significant, and public resources devoted to health investment have a positive correlation to the increment of per capita income. Alternative estimates to deal with the possible endogeneity of some variables as well as changes in the specification, confirm most of the previous results. A simple two-sector model of endogenous growth is presented to explain these results.