Infrastructure in the 21st Century Economy Overview and Summary of Methods and Findings

Four objectives were defined for this project's contribution to the Federal nfrastructure Strategy:1. to answer the question of whether the nation (USA) is under-invested in infrastructure;2. to gain insight into the mechanism by which infrastructure investment affects economic activity.3. to resolve the discrepancies in various estimates of infrastructure's economic impacts;4. to gain insight into which analytical approaches are best suited to answering specific questions about the economic effects of infrastructure. This means...Different methods have been used to answer different questions, using similar or identical data, and the results of these different exercises have been compared to assess how close they are to one another. The use of various econometric methods has been used to control for various statistical problems.A model has been constructed which links the macro and micro consequences of infrastructure, and which provides valuable insights in the impact of infrastructure at both levels of aggregation, as well as insights into the special characteristics of infrastructure capital. The Conclusions...Infrastructure matters - it is an important factor in production, but not as important as private investment (i.e. a small percentage increase in the latter has a more powerful effect on economic growth than does an equal percentage increase in the former). The impression left by some recent studies that infrastructure is merely a pork barrel public expenditure is not supported.However, an increase in infrastructure spending may have little of no effect on output, even though, on average, it matters a lot. The way in which infrastructure is financed matters - when distortionary taxes are used to finance infrastructure investments, losses due to those distortions in the use of private resources must be netted-out against the incremental gains.Rates of return to private and public capital appear to be approximately equal. Thus, there is no significant under-investment in infrastructure. Spillovers of impact from local areas to the nation as a whole appear to be largely absent, suggesting that the principal infrastructure systems have been built up and the main opportunities for super-normal returns in the US may already be exploited