Regional Science and Urban Economics
30 (2000) 457
tion for spending of this type comes from the theoretical belief that large-scaleinvestments in public infrastructure, such as interstate highways, contribute to
economic growth . Unfortunately, empirical support for this hypothesis is ex-tremely controversial, and consists of studies that are divided on both themagnitude and direction of the net effect of infrastructure spending on economic
growth . In addition, the impact of public infrastructure on economic activity innon-metropolitan areas remains unclear given that any economic impact may beprone to leak outside of small economic areas (Munnell, 1992; Rephann andIsserman, 1994). Such ‘‘leakages’’ are particularly likely for certain types of public investments, such as investments in transportation infrastructure. This isbecause investments in transportation infrastructure in non-metropolitan areas maycause some economic activity to shift from these areas to nearby metropolitanareas, as a result of lower transportation costs. Therefore, the net impact of suchinvestments on aggregate output and earnings remains an empirical question. Thistheoretical possibility, along with the fact that interstate highways can cost almosttwenty million dollars per mile in construction costs, challenges the strategy of making highway infrastructure investments in non-metropolitan areas as a means
to stimulate growth .The contribution of this paper is to offer an empirical assessment of whetherlarge infrastructure spending, of the type implied by interstate highway construc-
President Eisenhower commissioned the basic 42,500 miles of the Dwight D. Eisenhower System of Interstate and Defense Highways on June 29th 1956. Its estimated cost in 1996 dollars was over 329billion. By 1960, 10 000 miles were opened, by 1970, 30 000 miles were open, and by 1980 over80 000 miles were completed (United States Department of Transportation, 1976). Other countries havealso undertaken enormous highway construction initiatives with the purpose of stimulating economicgrowth: the American system was inspired by the German Autobahn construction of the 1930s, andCanada’s completion of the MacDonald-Cartier Freeway in the 1950s.
Aschauer (1989), Munnell (1992), and Nadiri and Mamuneas (1994), argue that increases in publiccapital raise output growth. Empirically, this has been conﬁrmed by Duffy-Deno and Eberts (1991),Garcia-Mila and McGuire (1992), Carlino and Voith (1992), and Morrison and Schwartz (1996).However, in a series of recent papers that criticize the econometric assumptions behind many of thesestudies Evans and Karras (1994), Holtz-Eakin (1994), Holtz-Eakin and Schwartz (1995a,b), andHoltz-Eakin and Lovely (1996) ﬁnd little evidence of spillover effects from public sector investments,including state highways. Most recently, Dalenberg and Partridge (1997) study the relationship betweenpublic infrastructure and wages, and note that highways raise wages in manufacturing but causedeclines in the size of the overall private sector.
This emphasis on the economic development impacts of highways is to be contrasted to the practiceof evaluating highway investments on the basis of national economic efﬁciency. Federal HighwayAdministration guidelines correctly evaluate projects based on beneﬁt–cost comparisons using nationalroad user beneﬁts such as the value of time savings and accident reduction (United States Departmentof Transportation, 1995). However, despite the advantages of evaluating highway project impacts onnational economic efﬁciency, it is evident that local economic development impacts are a motivationfor highway investment. For example, Rephann and Isserman (1994) note that regional developmentgoals were a primary motivation for highway investments undertaken by the Appalachian RegionalCommission.