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Infrastructure in a Structural Model of Economic Growth

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  • Douglas Holtz-Eakin
  • Amy Ellen Schwartz
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    Abstract

    Researchers, commentators, and politicians have devoted steadily more attention to infrastructure in response to claims that inadequate accumulation of public capital has contributed to substandard U.S. economic growth. Despite this, the link between infrastructure and productivity growth remains controversial. In this regard, it is somewhat surprising that infrastructure research has developed in isolation from the large literature on economic growth. We develop a neoclassical growth model that explicitly incorporates infrastructure and is designed to provide a tractable framework within which to analyze the empirical importance of public capital accumulation to productivity growth. We find little support for claims of a dramatic productivity boost from increased infrastructure outlays. In a specification designed to provide an upper bound for the influence of infrastructure, we estimate that raising the rate of infrastructure investment would have had a negligible impact on annual productivity growth between 1971 and 1986.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4824.

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    Date of creation: Aug 1994
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    Publication status: published as Regional Science and Urban Economics, vol. 25, pp. 131-151, 1995
    Handle: RePEc:nbr:nberwo:4824

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    References

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    1. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    2. Duffy-Deno, Kevin T. & Eberts, Randall W., 1991. "Public infrastructure and regional economic development: A simultaneous equations approach," Journal of Urban Economics, Elsevier, vol. 30(3), pages 329-343, November.
    3. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
    4. Randall W. Eberts, 1986. "Estimating the contribution of urban public infrastructure to regional growth," Working Paper 8610, Federal Reserve Bank of Cleveland.
    5. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
    6. Randall W. Eberts, 1990. "Public infrastructure and regional economic development," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 15-27.
    7. Alicia H. Munnell, 1990. "Why has productivity growth declined? Productivity and public investment," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-22.
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    Cited by:
    1. Tapiero, Charles S. & Kogan, Konstantin, 2008. "Sustainable infrastructure investment with labor-only production," International Journal of Production Economics, Elsevier, vol. 113(2), pages 876-886, June.
    2. Spiros Bougheas & Panicos Demetriades & Edgar Morgenroth, 1996. "Infrastructure, Transport Costs and Trade," Keele Department of Economics Discussion Papers (1995-2001) 96/7, Department of Economics, Keele University.
    3. Schiffbauer, Marc, 2008. "Catching Up or Falling Behind? The Effect of Infrastructure Capital on Technology Adoption in Transition Economies," Papers DYNREG27, Economic and Social Research Institute (ESRI).
    4. Pertti Haaparanta & Tuuli Juurikkala & Olga Lazareva & Jukka Pirttila & Laura Solanko & Ekaterina Zhuravskaya, 2003. "Firms And Public Service Provision In Russia," Working Papers w0041, Center for Economic and Financial Research (CEFIR).
    5. Rioja, Felix K., 1999. "Productiveness and welfare implications of public infrastructure: a dynamic two-sector general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 58(2), pages 387-404, April.
    6. V. Anton Muscatelli & Julia Darby & Chol-Won Li, . "Political Uncertainty, Public Expenditure and Growth," Working Papers 9822, Business School - Economics, University of Glasgow.
    7. César Calderón & Luis Servén, 2002. "The Output Cost of Latin America’s Infrastructure Gap," Working Papers Central Bank of Chile 186, Central Bank of Chile.
    8. Somik Lall, 2007. "Infrastructure and regional growth, growth dynamics and policy relevance for India," The Annals of Regional Science, Springer, vol. 41(3), pages 581-599, September.
    9. Ariane Lambert-Mogiliansky & Konstantin Sonin & Ekaterina Zhuravskaya, 2003. "Capture of Bankruptcy: Theory and Russian Evidence," Working Papers w0038, Center for Economic and Financial Research (CEFIR).
    10. Schiffbauer, Marc, 2006. "Theoretical and methodological study on the role of public policies in fostering innovation and growth," Papers DYNREG04, Economic and Social Research Institute (ESRI).
    11. Schiffbauer, Marc, 2007. "Calling for innovations - infrastructure and sources of growth," Papers DYNREG18, Economic and Social Research Institute (ESRI).
    12. Philip R. Gerson, 1998. "The Impact of Fiscal Policy Variableson Output Growth," IMF Working Papers 98/1, International Monetary Fund.
    13. Rovolis, Antonis & Spence, Nigel, 1999. "Public infrastructure capital, scale economies and returns to variety," ERSA conference papers ersa99pa077, European Regional Science Association.

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