Effects of public and private infrastructure investments
Research Paper Title:
“Infrastructure investments and entrepreneurial dynamism in the US”
Authors:
Background:
While there are many types of environmental shifts that can influence entrepreneurial dynamism, or the creation and destruction of businesses, one that has received very little scholarly attention is physical infrastructure development. In this research study, investments in infrastructure are assessed to understand the changes that act as either enablers or disablers of opportunity for entrepreneurs. Also, the effects of private and public infrastructure investments are examined.
Methodology:
Sample: Public infrastructure investment data from the annual U.S. Census Bureau State and Local Government Finance Survey public use data files for the period 1992–2015 and private non-residential construction data from the U.S. Census Bureau as a proxy for state-level Private infrastructure investment and dynamism measures from the Business Dynamics Statistics (BDS) database.
Sample Size: 1100 state-year observations
Analytical Approach: Dynamic panel system Generalized Methods of Moments (GMM) estimation
Hypotheses:
1A. Infrastructure investments are positively associated with establishment entry rates.
1B. Infrastructure investments are positively associated with establishment exit rates.
2A. Infrastructure investments are positively associated with job creation by new establishments.
2B. Infrastructure investments are positively associated with job destruction by exiting establishments.
Results:
Consistent with hypothesis 1A and 2A, private infrastructure investment is positively and significantly associated with both creation dynamism variables – Entry rate and Birth job creation.
Contrary to hypothesis 1A and 2A, however, public infrastructure investment is not significantly associated with either creation dynamism variable.
The opposite is true for the destruction dynamism variables. That is, consistent with Hypotheses 1B and 2B, public infrastructure investment is positively and significantly associated with both Exit rate and Death job destruction.
Contrary to Hypotheses 1B and 2B, private infrastructure investment is not significantly associated with either destruction dynamism variable.
Conclusion:
Private infrastructure investment is beneficial for business and job creation, while public infrastructure investment may eliminate businesses and jobs. The results of this study suggest that states that provide a business environment that encourages private infrastructure investments are more attractive to entrepreneurs and may therefore provide growing firms with access to the resources and capabilities that they require to take their businesses to the next level. Because the impact of public infrastructure investments is heterogeneous, policymakers should carefully evaluate the costs and benefits of public investment opportunities. Also, policies that encourage private infrastructure investment, perhaps through public-private partnerships, are likely to be effective stimulants to entrepreneurship and job creation.