Transportation infrastructure and economic activity: Evidence using vector autoregression, error correction and directed acyclic graphs

Prior analysis regarding transportation infrastructure has often focused on the aggregate effects of public investment on economic growth or activity, usually at a national or state level. Modeling efforts that attempt to treat all counties as equivalent units, while assuming a homogeneous modeling structure for all the units, may miss important information regarding the statistical and causal relationships between economic activity and transportation infrastructure. This study examines the interrelationships between infrastructure and activity using two Washington State highway infrastructure datasets in combination with county-level employment, wage and establishment numbers for several industrial sectors for a subset of counties from 1990 to 2004. Estimations using vector autoregressions, error correction models and directed acyclic graphs are made. The results show that the relationships between infrastructure investment and economic activity are often weak and are not uniform in effect.