TFP, Costs, and Public Infrastructure: An Equivocal Relationship¤

This paper studies the impact of public infrastructure on economic performance. We employ three di¤erent methodologies to estimate the returns to public investment. First, we relate growth in total factor productivity to accumulation of public capital. Second, we assess the role of public capital as an input to production. Third, we evaluate the reduction in costs that can be attributed to the presence of public infrastructure. Using regional data for Italy, we ...nd that the aggregate impact of public capital is positive and signi...cant under the ...rst approach, slightly negative under the second, and virtually zero under the third. More coherent results obtain when disaggregating by geographical area and time period: under all three approaches, the e¤ectiveness of public investment seems to be increasing over time and to be higher in Central and Southern regions than in Northern ones. J.E.L. Classi...cation: H54, O47, C50