Is public capital more productive than private capital: Evidence from Latvia 1995-2009

The purpose of this article is to estimate private and public capital contribution to economic growth in Latvia 1995 - 2009 using production function approach. It was found that both private and public capital have positive and statistically significant impact on economic growth and labour productivity. Moreover, public capital is 1.6 times more productive than private capital. Nevertheless, private capital accumulation affects technical progress through "learning by doing" externality. It was shown that total factor productivity and private capital formation were the main driving forces of economic growth in Latvia 1995 - 2009. It was pointed out that production function should be augmented with cyclical variables when output is constrained by the aggregate demand which is a case for Latvia in 2008-2009.