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Roads to Prosperity?: Assessing the Link Between Public Capital and Productivity

Posted: 21 Jul 1998  

John G. Fernald

Federal Reserve Bank of San Francisco

Date Written: October 1997

Abstract

At a macroeconomic level, infrastructure and productivity are positively correlated in the United States and other countries. However, it remains unclear whether this correlation reflects causation and, if so, whether causation runs from infrastructure to productivity, or the reverse. This paper focuses on roads and finds that vehicle-intensive industries benefit disproportionately from road-building: when road growth changes, productivity growth changes more in industries that are more vehicle intensive. These results suggest that causation runs from infrastructure to productivity. However, there is no evidence that at the margin, roads offer an above-average return; road-building in essence offered a one-time boost to the level of productivity in the 1950s and 1960s. Finally, it appears that congestion significantly affects road-services at the margin, although congestion does not appear important before 1973.

JEL Classification: D24, E23, E62

Suggested Citation

Fernald, John G., Roads to Prosperity?: Assessing the Link Between Public Capital and Productivity (October 1997). FRB International Finance Discussion Paper No. 592. Available at SSRN: https://ssrn.com/abstract=42589

John G. Fernald (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-2135 (Phone)

HOME PAGE: http://www.frbsf.org/economics/economists/jfernald.html

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