Impact of Public Infrastructure Investments on Economic Growth

Public infrastructure provides a basis for economic activities. The production and distribution of private economic output depend on public transportation and environmental facilities. The location and level of public investments can change both the welfare of the community and the distribution of income within the community. The objective of this study is to examine the productivity impact of public infrastructure capital on economic growth in the U.S., using a production function approach. The relationship is analyzed for short and long term with Autoregressive Distributed Lag (ARDL) model. This study looks into the relationship between federal, state and local public infrastructure investments and Gross Domestic Product (GDP). The results of the analysis show that there is a positive relationship between public capital and industrial output. The model results predict that the elasticity of the output to public infrastructure capital ranges from 0.03 to 0.05 in the long-term. Results of this analysis also show some evidence of reverse causality--the argument that economic trends invite public investment. The results also support the argument that public capital actually stimulates private investment