Spatial Impacts of Endogenously Determined Infrastructure Investment

Abstract

We address three questions: Do infrastructure investments impact on local incomes, population and land values? Do these effects spill over into neighbouring regions? Is infrastructure investment a response to local developments? We outline a theoretical framework and estimate a simultaneous equation growth model of infrastructure investment, real incomes, population and land values. The model, estimated by spatial three-stage least squares, uses New Zealand functional labour market panel data. We find that infrastructure investment increases population and incomes, but is itself endogenously determined and subject to positive spatial spillovers. Thus a self-reinforcing cycle exists between local incomes and infrastructure investment.