How Does Public Infrastructure Affect Regional Economic Performance?

by Alicia H. Munnell with the assistance of Leah M. Cook
September/October 1990

Bridge collapses and water main explosions focus national attention on the crumbling condition of the nation’s infrastructure. Catastrophic infrastructure failures are always a momentary spur to debate on the nation’s capital investment policies. But increasingly these negative developments have been accompanied by economists’ claims that public capital investment makes a significant contribution to national output, . productivity, growth, and international competitiveness.

This paper explores the impact of public capital on economic activity at the state and regional level. The author concludes that those states that have invested in infrastructure tend to have greater output, more private investment, and more employment growth. Her findings suggest that public investment comes before the pickup in economic activity and serves as a base, but she cautions that much more work is required to spell out the specifics of the link between public capital and economic performance.

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