The contribution of publicly provided inputs to states' economies

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Abstract

We specify a regional production function that, in addition to labor and private capital, includes two publicly provided inputs — highways and education. We employ a panel data set consisting of annual observations on the 48 contiguous states from 1969 to 1983 to estimate input elasticity coefficients under a specification that allows for differences over time and across states. We find that both of the publicly provided inputs have a significant and positive effect on output. Our results support the policy conclusion that publicly provided infrastructure is an important element of economic growth.

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    Citation Excerpt :

    Empirical work carried out by Aschauer (1989) and Munnell (1990) formed the first wave of this line of research conducted at the country level. These classical papers were followed by several studies that explored the US at different levels, using different modelling approaches (Garcia-Mila and McGuire, 1992; Munnell and Cook, 1990; Nadiri and Mamuneas, 1994). These first studies mainly explored the US, but in the 1990s, the focus shifted to examine the link between public infrastructure and productivity in other countries (Otto and Voss, 1994; Sturm, 1998).

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We are grateful to Dave Card, Rob Porter, Julio Rotemberg and an anonymous referee for helpful comments and suggestions.

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