The Macroeconomic Impact of Infrastructure Investment – or lack thereof - in the US

Abstract

Federal and state investment on infrastructure, including new roads, sanitation, and power plants, is key to economic growth and recovery. I concluded, through a review of prior publications and empirical studies, that infrastructure investment can stimulate both economic output growth and employment. Timing of the investment and the government's chosen method of funding are two significant factors that influence the impact of infrastructure investment. Infrastructure spending shows greater influence during economic recessions for both economic output and unemployment as more labor force and resources are available. Both deficit-financed and deficit-neutral methods have short- and long-term benefits on output and employment growth, but to varied degrees. In the short run, the two strategies have little to no impact on output and employment since several conflicting force would mitigate each other. In the long term, however, deficit-neutral method tends to have greater impact on output and employment since there will be no “crowding out” of private investment.