13 to the three types capital stocks that are assumed to influence growth. The second set of variables on the right hand side of the equation are included in the regressions to capture the impact of differences in efficiency of public capital utilization and in the financing of public capital, as explained in more detail below.

The parameters of the growth equation are estimated with data for 46 developing countries over the period 1970-1990, from the data set in Easterly and Rebelo (1993) and various issues of the World Bank's World Development Report.14 (Accordingly, note that since y(.) is expressed in natural logs, y(T) - y(0) represents a growth rate over a 20-year time interval, T.) Private and public investment rates (expressed as shares of output) were averaged for each country over the period 1970-1990 and then deflated by the average effective depreciation rate over that period to generate proxies for the private and public capital stocks. It is pertinent to note that public capital as defined here does not correspond directly to the definition of infrastructure capital. In most countries, the bulk of transportation, power and other public infrastructure facilities are publicly owned, but in several countries, some of these facilities are partly privately owned. Human capital is proxied by secondary education enrollment rates averaged over the same 20-year period.

Hulten (1996) drew attention to the importance of taking into account the efficiency with which the public capital stock is being used, along with the absolute amount of that stock. To capture this effect, a continuous measure of public capital efficiency across countries has been constructed on the basis of the four indicators used in Hulten (1996) and obtained from the 1995 World Development Report. The four indicators are (i) mainline faults per 100 telephone calls for telecommunications, (ii) electricity generation losses as a percent of total electricity output, and (iii) the percentage of paved roads in good condition and (iv) diesel locomotive utilization as a percentage of the total rolling stock. Each of these indicators was normalized so that performance in a particular category is measured in terms of standard deviations from the cross-country average level of performance. Then a simple average across performance indicators was taken to obtain an aggregate index for each country."<sup>5</sup> As discussed at the beginning, the impact of public capital on economic growth is likely to vary according to how it is financed. There are two basic options considered in the growth equation estimated below. One is debt finance, which implies a higher level of taxes (and its distorting consequences). The other option is the reorientation of public expenditures from government consumption to investment spending, which would maintain the level of debt and taxation constant. Following Barro

> '<sup>4</sup> The 46 developing countries used in these regressions coincide with the same sub-set of countries used in Hulten's (1966) analysis.

> **_15It_** is interesting to note that Mexico ranked second highest among the 46 develbping countries in terms of the public capital efficiency index. (Mauritius ranked the highest and Nigeria ranlked last.) The parameters underlying Mexico's efficiency index are (a) 13% of electric power generation output is lost, (b) 85% of paved roads are in good condition, and (c) 64% of diesel inventory is in use.