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American Economic Review: Vol. 89 No. 3 (June 1999)

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Roads to Prosperity? Assessing the Link between Public Capital and Productivity

Article Citation

Fernald, John G. 1999. "Roads to Prosperity? Assessing the Link between Public Capital and Productivity." American Economic Review, 89(3): 619-638.

DOI: 10.1257/aer.89.3.619

Abstract

Does the positive correlation between infrastructure and productivity reflect causation? If so, in which direction? The author finds that, when growth in roads (the largest component of infrastructure) changes, productivity growth changes disproportionately in U.S. industries with more vehicles. That vehicle-intensive industries benefit more from road-building suggests that roads are productive. At the margin, however, road investments do not appear unusually productive. Intuitively, the interstate system was highly productive, but a second one would not be. Road-building thus explains much of the productivity slowdown through a one-time, unrepeatable productivity boost in the 1950s and 1960s.

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Authors

Fernald, John G. (Federal Reserve System)

JEL Classifications

H54: National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock
R53: Public Facility Location Analysis; Public Investment and Capital Stock
E62: Fiscal Policy


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