Public Infrastructure and the Productive Performance of Canadian Manufacturing Industries

Abstract

This article examines the effects of public infrastructure on the productive performance of 12 two‐digit Canadian manufacturing industries. A flexible cost function incorporating public capital infrastructure is estimated for each industry separately using annual time series data for 1961‐1995. The effects of public infrastructure on productivity are measured in terms of both cost‐saving (dual) and output‐augmenting (primal) measures. We also investigate how public capital influences the input demand and cost structure in each industry and calculate the rate of return to public capital. The empirical results provide strong evidence of the important role public infrastructure plays in the productivity of manufacturing industries. The public capital serves as a substitute for both private capital and labor in most industries. The rates of return to public capital are significant and vary over the years.