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Policy Watch: Infrastructure Investment and Economic Growth

  • Alicia H. Munnell

In the late 1980s, David Aschauer (1989) triggered a long overdue dialogue among economists and political leaders when he published a study arguing that much of the decline in U.S. productivity that occurred in the 1970s was precipitated by declining rates of public capital investment. My own work confirmed these results (Munnell, 1990a). Spending advocates seized on these findings as support for increased public investment. The enthusiasm among policymakers for the early Aschauer results was matched, if not surpassed, by skepticism on the part of many economists. Critics of these studies charged that the methodology was flawed, that the direction of causation between public investment and output growth is unclear and that, even if the historical empirical relationships were estimated correctly, they provide no clear indications for current policy. Who's right? What do we know and not know about the link between public infrastructure and productivity? And what are the implications of these results for policy?

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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 6 (1992)
Issue (Month): 4 (Fall)
Pages: 189-198

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Handle: RePEc:aea:jecper:v:6:y:1992:i:4:p:189-98
Note: DOI: 10.1257/jep.6.4.189
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  1. Clifford Winston, 1991. "Efficient Transportation Infrastructure Policy," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 113-127, Winter.
  2. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  3. David Aschauer, 1988. "Does public capital crowd out private capital?," Staff Memoranda 88-10, Federal Reserve Bank of Chicago.
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