Economics of Infrastructure Investment

An NBER conference on Economics of Infrastructure Investment took place November 15-16 in Cambridge. Research Associates Edward L. Glaeser of Harvard University and James M. Poterba of MIT organized the meeting, sponsored by the Smith Richardson Foundation. These researchers' papers were presented and discussed:

Leah Brooks, George Washington University, and Zachary Liscow, Yale University

Is Infrastructure Spending Like Other Spending?

Although infrastructure is a key input into economic growth, there is very limited systematic evidence on variation in infrastructure costs across over space and time. Brooks and Liscow document spatial variation in the cost of US infrastructure, focusing on the cost of constructing one new mile of Interstate highway over the period of major Interstate development. The variation in spending across states is large. If states spending over the median had limited their expenditure per mile to that of the median state, the Interstate system would have cost about $260 billion, or 40 percent less, to build. The researchers also investigate whether the pattern of spatial variation in Interstate spending per mile is similar to that of other locally important spending, similarity may indicate common cost drivers. The coefficient of variation for Interstate spending per mile is about four times that of Medicare per enrollee and twice that of Medicaid per enrollee. Variation in Interstate spending conditional on geographic cost drivers remains larger than that of publicly provided healthcare. In a multivariate framework, Interstate spending per mile, net of geographic controls for cost of construction, is most strongly statistically related to Medicare spending per enrollee, an additional $1,000 in Medicare spending is associated with $1.3 million more dollars in Interstate spending per mile. Income and other demographic factors partially mediate this relationship.

Matthew Turner, Brown University and NBER, and Geetika Nagpal, Brown University

Transportation Infrastructure in the US

Jennifer Bennett, Robert Kornfeld, and David Wasshausen, Bureau of Economic Analysis, and Daniel E. Sichel, Wellesley College and NBER

Measuring Infrastructure in BEA's National Economic Accounts

Shane Greenstein, Harvard University and NBER

Digital Infrastructure

What determines variance in the supply of innovative digital infrastructure, and how does it shape economic outcomes? Greenstein covers the economic impact of deployment and adoption of access services, while in the latter part of the essay covering complementary activities that enables internet access to deliver better performance. The latter discussion uses examples to illustrate broad observations and issues, especially where statistical research lags business practices. Greenstein's research emphasizes economic research about the United States and covers the global experience when possible. It stresses the large number of unanswered policy-relevant research questions.

Valerie A. Ramey, University of California, San Diego and NBER

Macroeconomic Consequences of Infrastructure Investment

Ramey examines macroeconomic theory and empirical evidence on the short-run and long-run effects of government investment in developed economies such as the US. Ramey begins by presenting a stylized dynamic general equilibrium model in order to elucidate the economic intuition behind the effects. Ramey uses the model to explain the recent findings from the macroeconomic quantitative literature that short-run multipliers on government investment are likely to be lower than those on government consumption in most instances. Next, they analyze the leading empirical estimates of the long-run effects of public investment. Using insights and artificial data from the stylized model as a guide, Ramey demonstrates the econometric biases that may be present in some estimates from the literature. The research then reviews the empirical estimates on the short-run effects, with particular attention to the ARRA. Ramey builds on some of the existing literature to search for direct effects of highway infrastructure grants on construction employment. Like a number of papers from the literature, no positive effects are found. Ramey concludes that most of the research suggests that while government investment is likely to increase output in the long run, its short-run effects are near zero in most situations.

Dejan Makovsek, International Transport Forum at the OECD, and Adrian Bridge, Queensland University of Technology

Procurement Practices and Infrastructure Costs

Eduardo Engel and Ronald Fischer, Universidad de Chile, and Alexander Galetovic, Adolfo Ibáñez University

International Experience with Public-Private Partnerships in Infrastructure

Deborah J. Lucas, MIT and NBER, and Jorge Alberto Jimenez Montesinos, MIT

A Fair Value Approach to Valuing Public Infrastructure Projects and the Risk Transfer in Public Private Partnerships

NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us