Why More Highway Spending Won’t Rev Up the Economy
An Allendale Strong member recognized further evidence that smart cities are reclaiming inner-city interstates in this recent WSJ article, notably the two following quotes…
Charles Hulten, an economist at the University of Maryland, found that infrastructure investment in developing countries like India resulted in increased productivity and higher growth rates. In developed countries with vast road networks, such as the U.S., new investment resulted in no change in overall productivity and growth.
A group of economists in Spain studying that country’s infrastructure spending between 1964 and 1991 concluded that the investment earlier in the period produced greater economic gains than investments later, when much of the infrastructure was already in place.
Researchers have also found that in developed countries, whatever local benefits come from highway improvements come at the expense of other locations. In other words, road spending reallocates the pie but doesn’t make it bigger.
Mr. Duranton and two co-authors, Geetika Nagpal and Matthew Turner, both of Brown University, suggested in a paper last year that new investments “lead to a displacement of economic activity while net growth effects are limited.”
In a 2012 paper, San Francisco Fed economists Sylvain Leduc and Daniel Wilson found that new spending on roads can boost an area’s economy at two specific times: immediately after the new spending has been announced, and six to eight years later, when construction is under way. Beyond 10 years, there were no economic benefits to infrastructure spending, they found.
Moreover, the immediate effect applies only during recessions, they wrote. It’s unclear whether the U.S. would see that short-term boost now that the economy is expanding rapidly.