Spillovers and the Locational Effects of Public Infrastructure

This paper examines the possibility of negative output spillovers frompublic infrastructure. A model of productive public capital shows that when input factors aremobile, public infrastructure investments in one location can draw production away from otherlocations. In a linear production‐function framework, this effect would be manifested as anegative output spillover from public capital. Using data for California counties from 1969through 1988, such negative spillover effects are shown to exist in the case ofstreet‐and‐highway capital. The data show that changes in county output are positivelyassociated with changes in street‐and‐highway capital within the same county, but outputchanges are negatively associated with changes in street‐and‐highway capital in other counties.