Roads to Prosperity? Assessing the Link Between Public Capital and Productivity

TLDR

Infrastructure’s positive correlation with productivity is well documented, yet the direction of causality remains uncertain. Road expansion disproportionately raises productivity in vehicle‑intensive industries, but marginal gains are modest; historically, road building accounted for a one‑time productivity boost in the 1950s–60s that helped explain the slowdown. JEL codes: E62, O47, R53.

Abstract

Does the positive correlation between infrastructure and productivity reflect causation? If so, in which direction? I find that when growth in roads (the largest component of infrastructure) changes, productivity growth changes disproportionately in U.S. industries with more vehicles. That vehicle-intensive industries benefit more from road-building suggests that roads are productive. At the margin, however, road investments do not appear unusually productive. Intuitively, the interstate system was highly productive, but a second one would not be. Road-building thus explains much of the productivity slowdown through a one-time, unrepeatable productivity boost in the 1950's and 1960's. (JEL E62, O47, R53)