University of California Transportation Center

Recent cross-state studies of public infrastructure suggest that infrastructure is not economically productive. Yet it is possible that public capital influences economic activity largely by shifting that activity from one location to another. If that is the case, infrastructure can be productive at small geographic scales but not productive over large areas. This paper tests that hypothesis with a production function study of highway and road capital in California counties for the years 1969 through 1988. The results show that county output is positively associated with highway capital in the county, but negatively associated with highway capital in neighboring counties. This suggests that the productive effects of highway capital are largely a shift in economic activity from one county to another.