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Roads to prosperity? assessing the link between public capital and productivity

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Author Info
John Fernald

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Abstract

At a macroeconomic level, infrastructure and productivity are positively correlated in the United States and other countries. However, it remains unclear whether this correlation reflects causation, and if so, whether causation runs from infrastructure to productivity, or the reverse. This paper focuses on roads, and finds that vehicle-intensive industries benefit disproportionately from road-building: when road growth changes, productivity growth changes more in industries that are more vehicle intensive. These results suggest that causation runs from infrastructure to productivity. However, there is no evidence that at the margin, roads offer an above-average return; road-building in essence offered a one-time boost to the level of productivity in the 1950s and 1960s. Finally, it appears that congestion significantly affects road-services at the margin, although congestion does not appear important before 1973.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 592.

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Date of creation: 1997
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Handle: RePEc:fip:fedgif:592

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Related research
Keywords: Capital ; Productivity;

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References listed on IDEAS
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  1. Berndt, Ernst R & Hansson, Bengt, 1992. " Measuring the Contribution of Public Infrastructure Capital in Sweden," Scandinavian Journal of Economics, Blackwell Publishing, vol. 94(0), pages S151-68, Supplemen.
  2. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March. [Downloadable!] (restricted)
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  3. Alicia H. Munnell & Leah M. Cook, 1990. "How does public infrastructure affect regional economic performance?," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 11-33.
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  4. Basu, Susanto & Fernald, John G., 1995. "Are apparent productive spillovers a figment of specification error?," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 165-188, August. [Downloadable!] (restricted)
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  5. Holtz-Eakin, Douglas, 1994. "Public-Sector Capital and the Productivity Puzzle," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 12-21, February. [Downloadable!] (restricted)
  6. Kocherlakota, Narayana R & Yi, Kei-Mu, 1996. "A Simple Time Series Test of Endogenous vs. Exogenous Growth Models: An Application to the United States," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 126-34, February. [Downloadable!] (restricted)
  7. Wolff, Edward N, 1996. "The Productivity Slowdown: The Culprit at Last? Follow-Up on Hulten and Wolff," American Economic Review, American Economic Association, vol. 86(5), pages 1239-52, December. [Downloadable!] (restricted)
  8. Morrison, Catherine J & Schwartz, Amy Ellen, 1996. "State Infrastructure and Productive Performance," American Economic Review, American Economic Association, vol. 86(5), pages 1095-1111, December. [Downloadable!] (restricted)
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  9. Holtz-Eakin, Douglas, 1993. "State-specific estimates of state and local government capital," Regional Science and Urban Economics, Elsevier, vol. 23(2), pages 185-209, April. [Downloadable!] (restricted)
  10. Robert Ford & Pierre Poret, 1991. "Infrastructure and Private-Sector Productivity," OECD Economics Department Working Papers 91, OECD, Economics Department. [Downloadable!]
  11. Griliches, Zvi, 1994. "Productivity, R&D, and the Data Constraint," American Economic Review, American Economic Association, vol. 84(1), pages 1-23, March.
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  12. Susanto Basu & Miles S. Kimball, 1997. "Cyclical Productivity with Unobserved Input Variation," NBER Working Papers 5915, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Nadiri, M Ishaq & Mamuneas, Theofanis P, 1994. "The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of U.S. Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 22-37, February. [Downloadable!] (restricted)
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  14. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers 546, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  15. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September. [Downloadable!] (restricted)
  16. David Alan Aschauer, 1990. "Why is infrastructure important?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 21-68. [Downloadable!]
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