Economic Quarterly

Past analyses of the effects of government nondefense capital spending on the private economy have focused on public investment in physical capital such as roads, bridges and plant and equipment rather than on public investment in human capital. By contrast, government spending on education and labor training, both of which enhance human capital, are here found to have statistically (and numerically) significant correlations with the future growth of real private GDP. Other types of government spending are found to have weaker (or no) correlations with private GDP growth.