Fall 2016 (Vol.55, No.3)

Modeling the Transport Infrastructure-Growth Nexus in the United States

Abstract

The rising government funding in transport infrastructure has sparked political and academic debates on the economic impacts of transport infrastructure investment in the United States. Although numerous empirical studies have examined the transport infrastructure-growth nexus, existing literature has mixed conclusions of the economic effects of expanding transport infrastructure. The main objective of this paper is to assess the short- and long-run impacts of transport and nontransport public infrastructure on economic growth to provide an implication of the effectiveness of these fiscal policy tools in the short- and long-term. For this purpose, we employ a modern autoregressive distributed lag (ARDL) approach to explore the dynamic relationships among transport infrastructure, non-transport public infrastructure, private capital, labor hours, GDP, and exports. In the long run, we find that a bidirectional relationship exists between transport infrastructure and GDP, suggesting that expanding transport infrastructure improves aggregated economic output, and enhanced economic output increases public investment in transport infrastructure. However, the magnitude of the impact of transport infrastructure on GDP is smaller than that of non-transport public infrastructure, implying that non-transport infrastructure investment is a more effective longterm fiscal stimulus than expanding transport infrastructure.

by Junwook Chi and Jungho Baek

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