Spillovers and the locational effects of public infrastructure

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 street-and-highway capital. The data show that changes in county output are positively associated with changes in street-and-highway capital within the same county, but output changes are negatively associated with changes in street-and-highway capital in other counties.