Scale Economies, Returns to Variety, and the Productivity of Public Infrastructure

Douglas Holtz-Eakin and Mary Lovely

No 5295, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the productivity of public infrastructure in a general equilibrium context. In our model, infrastructure lowers costs in a manufacturing sector characterized by both firm-level returns to scale and industry-level external returns to variety. Infrastructure alters factor prices, intermediate prices and the allocation of factors across sectors. The effect on manufacturing or aggregate output, however, is indeterminate. In particular, our theory suggests that the degree of monopoly power influences public capital's productivity effect. We test the model using state-level panel data. We confirm the absence of direct effects on output, but find suggestive evidence of a positive impact of public capital on manufacturing variety as measured by the number of manufacturing establishments. These results indicate the need for future research on potentially important indirect channels by which public capital affects manufacturing productivity.

JEL-codes: H40 H73 (search for similar items in EconPapers)
Date: 1995-10
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Regional Science and Urban Economics, Vol. 26. 1996, pp. 105-123

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Journal Article: Scale economies, returns to variety, and the productivity of public infrastructure (1996)
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