The Bank of Israel publishes a new study that indicates an increase in productivity in the industrial sectors as investment in infrastructure such as roads, railways and ports increases
A study conducted by Dr. Ran Shahrabani, from the Bank of Israel's research department, which deals with the impact of infrastructural capital on the industrial sectors, found that the infrastructure capital - which is mainly roads, railways, sea and air ports and communications - increases the productivity of the industrial sectors. A 10 percent increase in infrastructure capital increases productivity, on average, by about 1.25 percent.
The government has an influence on the private market since it determines the level of infrastructure and regulation, in this way it is able to encourage production and improve competitiveness. The more the government invests in infrastructure capital, the more the private market saves costs, this savings is invested in raw materials used in production and as a result industrial productivity increases. According to the research, it turns out that infrastructure capital is a substitute capital for private capital and, to some extent, for labor, a 10 percent increase in infrastructure capital allows the private capital to decrease, on average, by about 4 percent, and the amount of labor - about 0.7 percent.
In the study it was found that yield increases with size in almost all industries. If the government doubles all inputs, the industry's output will more than double. The findings are similar to findings in research works of the branches of industry in similar countries such as the USA, Canada and Australia.
It is worth noting that infrastructure capital serves both other sectors of the economy as well as consumers, so the benefit to the entire economy is much more significant.