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State Infrastructure and Productive Performance

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  • Catherine J. Morrison
  • Amy Ellen Schwartz

Abstract

The impact of public infrastructure investment on the productive performance of firms has been an important focus of the recent literature on productivity growth. The size of this impact has important implications for policymakers' decisions to invest in public capital, and productivity analysts' evaluation of productivity growth fluctuations and declines. However, detailed evaluation of the infrastructure impact is difficult using existing studies which rely on restricted models of firms' technology and behavior. In this paper we construct a more complete production theory model of firms' production and input decisions. We then apply our framework to state-level data on the output production and input (capital, nonproduction and production labor and energy) use of manufacturing firms to evaluate the contribution of infrastructure to firms' costs and productivity growth. We find that infrastructure investment does provide a significant direct benefit to manufacturing firms and thus augments productivity growth. We also show, however, that this evidence should be interpreted taking into account the social cost of such capital (which is not reflected in firms' costs), and the indirect impact resulting from scale effects.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3981.

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Date of creation: Jan 1992
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Publication status: published as American Economic Review, Vol. 86, no. 5 (December 1996): 1095-1111.
Handle: RePEc:nbr:nberwo:3981

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  1. Alicia H. Munnell, 1990. "How does public infrastructure affect regional economic performance?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 34, pages 69-112.
  2. Ernst R. Berndt & Bengt Hansson, 1991. "Measuring the Contribution of Public Infrastructure Capital in Sweden," NBER Working Papers 3842, National Bureau of Economic Research, Inc.
  3. David Alan Aschauer, 1990. "Why is infrastructure important?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 34, pages 21-68.
  4. M. Ishaq Nadiri & Theofanis P. Mamuneas, 1991. "The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of U.S. Manufacturing Industries," NBER Working Papers 3887, National Bureau of Economic Research, Inc.
  5. Morrison, Catherine J, 1985. "Primal and Dual Capacity Utilization: An Application to Productivity Measurement in the U.S. Automobile Industry," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 312-24, October.
  6. Randall W. Eberts, 1986. "Estimating the contribution of urban public infrastructure to regional growth," Working Paper 8610, Federal Reserve Bank of Cleveland.
  7. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  8. Catherine J. Morrison, 1989. "Unraveling the Productivity Growth Slowdown in the U.S., Canada and Japan: The Effects of Subequilibrium, Scale Economies and Markup," NBER Working Papers 2993, National Bureau of Economic Research, Inc.
  9. Morrison, Catherine J, 1988. "Quasi-Fixed Inputs in U.S. and Japanese Manufacturing: A Generalized Leontief Restricted Cost Function Approach," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 275-87, May.
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