Public Infrastructure Investment, Institutions, and Economic Dynamism in the United States

Abstract

Physical infrastructure is an aspect of a region’s entrepreneurial ecosystem and previous studies suggests that infrastructure is positively associated with entrepreneurial activity, a key component of economic dynamism. This small body of literature have largely focused on the stock of infrastructure, ignoring the costs of developing infrastructure as well as potential complementarities between infrastructure and other elements of the ecosystem. This paper examines the relationship between US state-level public infrastructure spending and economic dynamism over the period 1992-2015. The results suggest that infrastructure spending exerts a short-term negative impact on the establishment entry, birth and total job creation, and net job creation rates. The analysis also considers whether the effect of infrastructure development on dynamism is moderated by several other elements of the entrepreneurial ecosystem such as institutions (i.e., corruption), public policy (i.e., labor market frictions), and/or human capital.