Public Infrastructure and Economic Productivity

Abstract

Economists’ interest in the question of public infrastructure productivity has grown steadily since the 1980s. This paper reviews the literature on this topic with a particular focus on transportation's economic impact. Cumulative evidence reveals that, first, estimates of the elasticity of output with respect to public capital have declined over time and are currently in-distinguishable from zero. Second, highways have local negative spillover effects that arise from economic activities being drawn to infrastructure-rich locations at the expense of adjacent areas. Third, transportation infrastructure is subject to congestion, which reduces the productivity of such infrastructure even when stocks remain constant. Finally, highways consistently enhance the productivity of manufacturing firms even when they do not do so for firms in other sectors.