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Scale economies, returns to variety, and the productivity of public infrastructure

  • Holtz-Eakin, Douglas
  • Lovely, Mary E.

We examine the productivity of public infrastructure in a general equilibrium context. In our model, infrastructure lowers costs in a manufacturing sector characterized by both firm-level returns to scale and industry-level external returns to variety. Infrastructure alters factor prices, intermediate prices and the allocation of factors across sectors. The effect on manufacturing or aggregate output, however, is indeterminate. In particular, our theory suggests that the degree of monopoly power influences public capital's productivity effect. We test the model using state-level panel data. We confirm the absence of direct effects on output, but find suggestive evidence of a positive impact of public capital on manufacturing variety as measured by the number of manufacturing establishments. These results indicate the need for future research on potentially important indirect channels by which public capital affects manufacturing productivity.

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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 26 (1996)
Issue (Month): 2 (April)
Pages: 105-123

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Handle: RePEc:eee:regeco:v:26:y:1996:i:2:p:105-123
Contact details of provider: Web page: http://www.elsevier.com/locate/regec

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  1. 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.
  2. Douglas Holtz-Eakin & Mary E. Lovely, 1994. "Technological Linkages, Market Structure, and Optimum Production Policies," NBER Working Papers 4779, National Bureau of Economic Research, Inc.
  3. Garcia-Mila, Teresa & McGuire, Therese J & Porter, Robert H, 1996. "The Effect of Public Capital in State-Level Production Functions Reconsidered," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 177-80, February.
  4. Henderson, Vernon, 1997. "Externalities and Industrial Development," Journal of Urban Economics, Elsevier, vol. 42(3), pages 449-470, November.
  5. Holtz-Eakin, Douglas & Schwartz, Amy Ellen, 1995. "Infrastructure in a structural model of economic growth," Regional Science and Urban Economics, Elsevier, vol. 25(2), pages 131-151, April.
  6. Nadiri, M. Ishaq & Mamuneas, Theofanis P., 1991. "The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of U.S. Manufacturing Industries," Working Papers 91-57, C.V. Starr Center for Applied Economics, New York University.
  7. Garcia-Mila, Teresa & McGuire, Therese J., 1992. "The contribution of publicly provided inputs to states' economies," Regional Science and Urban Economics, Elsevier, vol. 22(2), pages 229-241, June.
  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.
  9. 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.
  10. 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.
  11. repec:cup:cbooks:9780521818551 is not listed on IDEAS
  12. Evans, Paul & Karras, Georgios, 1994. "Are Government Activities Productive? Evidence from a Panel of U.S. States," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 1-11, February.
  13. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
  14. Robert Dekle & Jonathan Eaton, 1994. "Agglomertion and the Price of Land: Evidence from the Prefectures," Boston University - Institute for Economic Development 47, Boston University, Institute for Economic Development.
  15. James R. Markusen, 1990. "First Mover Advantages, Blockaded Entry, And the Economics of Uneven Development," NBER Working Papers 3284, National Bureau of Economic Research, Inc.
  16. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  17. Ethier, Wilfred, 1979. "Internationally decreasing costs and world trade," Journal of International Economics, Elsevier, vol. 9(1), pages 1-24, February.
  18. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  19. 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.
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