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Roads to Prosperity? Assessing the Link between Public Capital and Productivity

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  • John G. Fernald

Abstract

Does the positive correlation between infrastructure and productivity reflect causation? If so, in which direction? The author finds that, when growth in roads (the largest component of infrastructure) changes, productivity growth changes disproportionately in U.S. industries with more vehicles. That vehicle-intensive industries benefit more from road-building suggests that roads are productive. At the margin, however, road investments do not appear unusually productive. Intuitively, the interstate system was highly productive, but a second one would not be. Road-building thus explains much of the productivity slowdown through a one-time, unrepeatable productivity boost in the 1950s and 1960s.

Suggested Citation

  • John G. Fernald, 1999. "Roads to Prosperity? Assessing the Link between Public Capital and Productivity," American Economic Review, American Economic Association, vol. 89(3), pages 619-638, June.
  • Handle: RePEc:aea:aecrev:v:89:y:1999:i:3:p:619-638
    Note: DOI: 10.1257/aer.89.3.619
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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