Ports and Highways Infrastructure

U.S. ports serve a vital role in the nation's supply chain and international trade. While the areas surrounding these ports bear the external costs of port expansion (congestion, air and noise pollution), neighboring regions feel the benefits and additional costs from port activity. Given the current debate over external costs from port activity, it is important to quantify the costs and benefits of ports on industry in the home state and neighboring states. This study assesses the role that transportation infrastructure plays in production and employment in the manufacturing industry. Using state-level data from the 48 contiguous states, the authors model manufacturing production and cost, incorporating state and local investment in port and highway infrastructure as variables. The authors find lower manufacturing costs in states with increased ports infrastructure. However manufacturing firms experience higher costs if a neighboring state increases its ports infrastructure, perhaps because productive resources (firms and workers) are drawn to states that increase ports infrastructure.