Why do we invest in transportation infrastructure and when does it work?

Appalachian Development Highway System

By Taylor Jaworski, Queen’s University

Calls for renewed infrastructure investment have been prominent issues in recent election cycles in the United States and Canada. Bernie Sanders called for $1 trillion in spending compared with $48 billion in President Obama’s first term and a proposed $73 billion to end his second term. Here in Canada, Prime Minister Justin Trudeau promised an additional $60 billion in new infrastructure spending. These proposals have received the endorsement of many economists, including Larry Summers in a recent Washington Post op-ed and Paul Krugman in the New York Times earlier this year.

Crucially, policymakers need to clarify the objectives of infrastructure spending. On the one hand, is the goal to provide short- or medium-run stimulus to ailing economies? If so, then knowing the magnitude of the fiscal multiplier is essential. A survey and more recent work on the fiscal multiplier by Valerie Ramey of UC-San Diego is available here, here, and here. On the other hand, is the goal to take advantage of historically low interest rates and use improvements in transportation infrastructure to promote long-run economic growth? In this case, economic history together with recent advances in empirical economics can provide a window into the long-run benefits of investment in new highways, bridges, and rail infrastructure.Read More »