INDUSTRY STUDIES OF THE RELATIONSHIP BETWEEN HIGHWAY INFRASTRUCTURE INVESTMENT AND PRODUCTIVITY

This paper summarizes an extensive empirical study of the links betwee n infrastructure (net highway stocks) and production costs for 369 fou r digit SIC manufacturing industries for 1969-86. it is the first stud y to examine the impact of specific public capital (highways) on the p roduction strucutre of disaggregate industry. A translog cost function is estimated and net and gross substitution elasticities are calculat ed, There are mixed results across industries and years. Costs increas e with highway stocks in some cases. but on average, an increase in hi ghway stocks is associated with modest reductions in manufacturing coa ts. The cost reductions primarily come, about from reduced labor end c apital inputs. Curiously. the data show inventory costs generally high er with a larger highway stock. Materials and related input costs ofte n are positively related to highway stocks. Omitted variables (such as the impact of highway and transportation on materials input prices) m ight explain this relationship.