State Infrastructure and Productive Performance

Schwartz, A.E. & Morrison, C.
American Economic Review, December 1996, Vol. 86, No. 5, pp 1095-1111.

Recent research on productivity growth has focused on public infrastructure and its impact on economic growth and productivity. We construct a model of firms' technology and behavior, taking advantage of the analytical framework provided in the cost-function-based applied production-theory literature, and apply it to state-level data for U.S. manufacturing. We find that infrastructure investment provides a significant return to manufacturing firms and augments productivity growth. The net benefits of infrastructure investment may or may not be positive, depending upon the social costs of infrastructure investment and the relative growth rates of output and infrastructure.