Scale Economies, Returns to Variety, and the Productivity of Public Infrastructure / Douglas Holtz-Eakin, Mary E. Lovely.

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Holtz-Eakin, Douglas

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w5295.Publication details: Cambridge, Mass. National Bureau of Economic Research 1995.Description: 1 online resource: illustrations (black and white)Subject(s):

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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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w5295 (Browse shelf(Opens below))	Not For Loan

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October 1995.

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.