Does public infrastructure affect economic activity?

Abstract

We examine the relationship between large infrastructure spending, of the type implied by interstate highway construction, and the level of economic activity. By collecting historical data on interstate highway construction and economic activity in the United States at the county level we find that highways have a differential impact across industries: certain industries grow as a result of reduced transportation costs, whereas others shrink as economic activity relocates. Additionally, we find that highways affect the spatial allocation of economic activity. They raise the level of economic activity in the counties that they pass directly through, but draw activity away from adjacent counties.