The Effects of Infrastructure Investment: a Two –Sector Dyanamic Computable General Equilibrium Analysis for

The effects of increased public investment on regional output and welfare in Ohio are investi-gated using a regional dynamic computable general equilibrium model. Public investment affects the growth of the state economy, although the magnitude of the effect depends on the pub-lic capital elasticity. Our simulations indicate that public capital is underprovided in Ohio in base year 1990. Accounting for congestion in the use of infrastructure diminishes the positive effects of increased public investment only slightly. Beyond some level, more infrastructure investment does not increase the household welfare and can actually reduce it. Numerous studies have employed regression models to examine the extent to which public investment in infrastructure contributes to private production and national or regional economic growth. Some of these studies have found public infrastructure to be important in national or regional economic growth (e.g., Aschauer 1989; Munnell 1990), while other studies report no strong relationship between public investment and output growth (e.g., Hulten and Schwab 1991; Holtz-Eakin 1994; Garcia-Mila, McGuire, and Porter 1996). Gramlich (1994) and Mikelbank and Jackson (2000) present a good overview of infrastructure studies