Municipal economic growth, fiscal transfers and public capital investment: Spatial econometric model for Colombia

Abstract

This work focused on establishing spatial effects in a convergence model that considers the relationship between municipal economic growth, fiscal transfers and investment in public capital. The annualized variation in GDP per capita of 1,100 municipalities is used as a result variable and the natural logarithms of the initial level of GDP per capita, national transfers per capita and gross fixed capital formation per capita are used as explanatory variables. Different spatial econometric models and spatial weighting matrix options were explored. Slight convergence is evident that decreases over time when the initial GDP per capita is considered, and slight divergence when this variable is considered in the neighborhood. On the other hand, significant direct and spatial effects were found, negative for fiscal transfers and positive for investment in public capital.