Spatial Impacts of Endogenously Determined Infrastructure Investment

Part of the New Frontiers in Regional Science: Asian Perspectives book series (NFRSASIPER, volume 24)


We address three questions: Do infrastructure investments impact on local incomes, population and land values? Do these effects spill over into neighbouring regions? Is infrastructure investment a response to local developments? We outline a theoretical framework and estimate a simultaneous equation growth model of infrastructure investment, real incomes, population and land values. The model, estimated by spatial three-stage least squares, uses New Zealand functional labour market panel data. We find that infrastructure investment increases population and incomes, but is itself endogenously determined and subject to positive spatial spillovers. Thus a self-reinforcing cycle exists between local incomes and infrastructure investment.


Infrastructure Economic growth Migration Land values 



We thank seminar audiences at the University of St Andrews, University of Waikato, University of Auckland and Motu Economic and Public Policy Research for helpful comments on earlier versions. The authors, however, are solely responsible for the views expressed.

Funding This work was supported by the Foundation for Research, Science and Technology [MOTU-0601] and the Ministry of Business, Innovation and Employment [Resilient Urban Futures].


  1. Aschauer D (1989) Is public expenditure productive? J Mon Econ 23(2):177–200CrossRefGoogle Scholar
  2. Barro RJ, Sala-i-Martin X (1992) Convergence. J Pol Econ 100(2):223–251CrossRefGoogle Scholar
  3. Biehl D (ed) (1986) The contribution of infrastructure to regional development final report of the infrastructure studies group to the Commission of the European Communities. Office for Official Publications of the European Communities, LuxembourgGoogle Scholar
  4. Bom P, Ligthart J (2009) What have we learned from the three decades of research on the productivity of public capital? Working Paper, Tilburg UniversityGoogle Scholar
  5. Boyle P, Halfacree K, Robinson V (1998) Exploring contemporary migration. Longman, HarlowGoogle Scholar
  6. Casado-Diaz JM (2000) Local labour market areas in Spain. Reg Stud 34(9):843–856CrossRefGoogle Scholar
  7. Cliff AD, Ord JK (1981) Spatial processes: models and applications. Pion, LondonGoogle Scholar
  8. Cochrane W, Poot J (2008) Forces of change: a dynamic shift-share and spatial analysis of employment change in New Zealand labour markets areas. Stud Reg Sci 38(1):51–78CrossRefGoogle Scholar
  9. Coleman A, Grimes A (2010) Betterment taxes capital gains and benefit cost ratios. Econ Lett 109(1):54–56CrossRefGoogle Scholar
  10. Conley TG, Topa G (2002) Socio-economic distance and spatial patterns in unemployment. J Appl Econ 17(4):303–327CrossRefGoogle Scholar
  11. Deno KT (1988) The effect of public capital on US manufacturing activity: 1970 to 1978. South Econ J 55(1):400–411CrossRefGoogle Scholar
  12. Duflo E, Pande R (2007) Dams. Q J Econ 122(2):601–646CrossRefGoogle Scholar
  13. Durlauf SN (1996) A theory of persistent income inequality. J Econ Growth 1(1):75–93CrossRefGoogle Scholar
  14. Florax R, Rey S (1995) The impacts of misspecified spatial interaction in linear regression models new directions in spatial econometrics. In: Anselin L, Florax R (eds) New directions in spatial econometrics. Springer, Berlin, pp 111–135CrossRefGoogle Scholar
  15. Garcia-Mila T, McGuire TJ (1992) The contribution of publicly provided inputs to states’ economies. Reg Sci Urban Econ 22(2):229–242CrossRefGoogle Scholar
  16. Getis A, Aldstadt J (2004) Constructing the spatial weights matrix using a local statistic. Geogr Anal 36(2):90–104CrossRefGoogle Scholar
  17. Gibbons S, Lyytikainen T, Overman H, Sanchis-Guarner R (2012) New road infrastructure: the effects on firms, SERC Discussion Paper 117. Spatial Economics Research Centre, LondonGoogle Scholar
  18. Greenwood MJ (1997) Internal migration in developed countries. In: Rosenzweig MR, Stark O (eds) Handbook of population and family economics, vol 1. North Holland, Amsterdam, pp 647–720CrossRefGoogle Scholar
  19. Griffith D (1996) Some guidelines for specifying the geographic weights matrix contained in spatial statistical models. In: Arlinghaus S (ed) Practical handbook of spatial statistics. CRC Press, Boca Raton, pp 65–82Google Scholar
  20. Grimes A (2014) Infrastructure and regional economic growth. In: Fischer M, Nijkamp P (eds) Handbook of regional science. Springer, Heidelberg, Chapter 28Google Scholar
  21. Grimes A, Liang Y (2010) Bridge to somewhere: valuing Auckland’s northern motorway extensions. J Transp Econ Pol 44(3):287–315Google Scholar
  22. Grimes A, Young C (2013) Spatial effects of urban rail upgrades. J Transp Geogr 30:1–6CrossRefGoogle Scholar
  23. Haughwout A (2002) Public infrastructure investments productivity and welfare in fixed geographic areas. J Publ Econ 83(3):405–428CrossRefGoogle Scholar
  24. Hirschman A (1958) The strategy of economic development. Westview Press, BoulderGoogle Scholar
  25. Holtz-Eakin D (1994) Public-sector capital and the productivity puzzle. Rev Econ Stat 76(1):12–21CrossRefGoogle Scholar
  26. Hulten CR, Schwab RM (1991) Public capital formation and the growth of regional manufacturing industries. Nat Tax J 44(4):121–134Google Scholar
  27. Kelejian HH, Prucha IR (1999) A generalized moments estimator for the autoregressive parameter in a spatial model. Int Econ Rev 40:509–533CrossRefGoogle Scholar
  28. Kelejian HH, Prucha IR (2004) Estimation of simultaneous systems of spatially interrelated cross sectional equations. J Econ 118:27–50CrossRefGoogle Scholar
  29. Kelejian HH, Robinson DP (1997) Infrastructure productivity estimation and its underlying econometric specifications: a sensitivity analysis. Pap Reg Sci 76:115–131CrossRefGoogle Scholar
  30. Lall S (2007) Infrastructure and regional growth dynamics and policy relevance for India. Ann Reg Sc 41(3):581–599CrossRefGoogle Scholar
  31. Lee J (2000) The robustness of Okun’s law: evidence from OECD countries. J Macroecon 22(2):331–356CrossRefGoogle Scholar
  32. LeSage JP, Pace RK (2009) Introduction to spatial econometrics. Chapman and Hall/CRC, Boca RatonCrossRefGoogle Scholar
  33. McLuskey W, Aitken A, Grimes A, Kerr S, Timmins J (2006) Rating systems in New Zealand: an empirical investigation into local choice. J Real Estate Lit 14(3):381–397Google Scholar
  34. Molho I (1986) Theories of migration: a review. Scot J Pol Econ 33(4):396–419CrossRefGoogle Scholar
  35. Moretti E (2011) Local labor markets. In: Ashenfeiter O, Card D (eds) Handbook of labor economics, vol 4, Part B. North Holland, Amsterdam, pp 1237–1313Google Scholar
  36. Newell JO, Papps KL (2001) Identifying functional labour market areas in New Zealand: a reconnaissance study using travel-to-work data, Occasional Paper Series No 2001/6. Department of Labour, WellingtonGoogle Scholar
  37. Nijkamp P, Poot J (2004) Meta-analysis of the impact of fiscal policies on long-run growth. Eur J Pol Econ 20(1):91–124CrossRefGoogle Scholar
  38. Nurske R (1953) Problems of capital formation in underdeveloped countries. Basil Blackwell, OxfordGoogle Scholar
  39. ONS, Coombes MG (1998) 1991- travel to work areas. Office for National Statistics, LondonGoogle Scholar
  40. Overman H, Rice P, Venables A (2010) Economic linkages across space. Reg Stud 44(1):17–33CrossRefGoogle Scholar
  41. Poot J (1986) A system approach to modelling the inter-urban exchange of workers in New Zealand. Scot J Pol Econ 33(3):249–274CrossRefGoogle Scholar
  42. Reich R (1991) The real economy. Atl Mon 267(2):35–52Google Scholar
  43. Roback J (1982) Wages rents and the quality of life. J Pol Econ 90:1257–1278CrossRefGoogle Scholar
  44. Roskruge M, Grimes A, McCann P, Poot J (2013) Homeownership social capital and satisfaction with local government. Urban Stud 50(12):2517–2534CrossRefGoogle Scholar
  45. Schabenberger O, Gotway CA (2005) Statistical methods for spatial data analysis. CRC Press, Boca RatonGoogle Scholar
  46. Stabler JC, Olfert MR (1996) Spatial labor markets and the rural labor force. Growth Chang 27(2):206–230CrossRefGoogle Scholar
  47. Stetzer F (1982) Specifying weights in spatial forecasting models: the results of some experiments. Environ Plan A 14:571–584CrossRefGoogle Scholar
  48. Sturm J-E, Kuper GH, De Haan J (1998) Modelling government investment and economic growth on a macro level: a review. In: Brakman S, Vanes H, Kuipers SK (eds) Market behaviour and macroeconomic modelling. Macmillan, London, pp 359–406CrossRefGoogle Scholar
  49. Wu JJ, Gopinath M (2008) What causes spatial variations in economic development in the United States? Am J Agric Econ 90(2):392–408CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Singapore 2017

Authors and Affiliations

  1. 1.University of WaikatoHamiltonNew Zealand
  2. 2.Motu Economic and Public Policy ResearchWellingtonNew Zealand
  3. 3.Victoria University of WellingtonWellingtonNew Zealand
  4. 4.University of GroningenGroningenNetherlands

Personalised recommendations