University of California Transportation Center

This paper examines the possibility of negative output spillovers from public infrastructure. A model of productive public capital shows that, when input factors are mobile, public infrastructure investments in one location can draw production away from other locations. In a linear production function framework, this effect would be manifested as a negative output spillover from public capital. Using data for California counties from 1969 through 1988, such negative spillover effects are shown to exist in the case of highway and street capital. The data show that changes in county output are positively associated with changes in highway and street capital within the same county, but output changes are negatively associated with changes in highway and street capital in other counties.