Duality theory and cost function analysis in a regional context: the impact of public infrastructure capital in the Greek regions

Abstract

The resurgent interest in the role of infrastructure on development, spurred by the work on Aschauer in the late eighties, has produced a voluminous research activity, both at national and regional levels. Even though the majority of this research is based on production function analysis, more recently has emerged the alternative analytical framework of duality theory and cost function analysis. The latter is utilised here, in an effort to investigate public capital's impact on manufacturing at the regional level (Greek prefectures). Public capital categories have been grouped to two major categories of 'productive' and 'social' infrastructure. The latter seems to play little role in reducing private costs, but the former appears to be an important cost reduction influence. It can also be demonstrated that infrastructure has a substitutional relationship with labour and intermediate inputs, and a complementary one with private capital.