Abstract: Paper No. 161

Infrastructure in a Structural Model of Economic Growth

Douglas Holtz-Eakin and Amy Ellen Schwartz

June 1993 

Researchers, commentators, and politicians have devoted steadily more attention to infrastructure in response to claims that inadequate accumulation of public capital has contributed to substandard United States economic growth. Despite this, the link between infrastructure and productivity growth remains controversial. In this regard, it is somewhat surprising that infrastructure research has developed in isolation from the large literature on economic growth. This paper develops a neoclassical growth model that explicitly incorporates infrastructure and is designed to provide a tractable framework within which to analyze the empirical importance of public capital accumulation for productivity growth. The results indicate little support for claims of a dramatic productivity boost from increased infrastructure outlays. In a specification designed to provide an upper bound for the influence of infrastructure, the authors estimate that raising the rate of infrastructure investment would have had a negligible impact on annual productivity growth between 1971 and 1986.

An updated version of this paper appears in Regional Science and Urban Economics, Vol. 25 (1995): pp. 131-151.