Public Infrastructure, Private Input Demand and Economic Performance in New England Manufacturing

Much of the current debate on the economic performance impacts of public infrastructure investment relates to the input-specific effects of such investment. In this article we explore these impacts by evaluating substitution patterns affecting private input use in New England manufacturing. Using a cost-based methodology, we find that, in the short run, public capital expenditures provide cost-saving benefits that exceed the associated investment costs due to substitutability between public capital and private inputs. Over time, however, stimulating investment in private capital increases economic performance more effectively than public capital expenditures alone and in fact reduces the cost incentive for such expenditures. In addition, growth in output motivated by infrastructure investment increases employment opportunities because this growth overrides short-run substitutability.