Over the last few election cycles, there have been increasingly larger calls to rebuild American infrastructure. In 2018, President Trump asked Congress for over $1.5 trillion in new funds to improve America’s railroads, bridges, highways, and port facilities. About a quarter of the new funds were to go to rural areas. Ultimately the proposal died.
Just in the last month, a new proposal, the Generating American Income and Infrastructure Now Act (GAIN) has been brought the U.S. House by Rep. Mike Kelly (R) of Pennsylvania. GAIN targets infrastructure dollars at economically distressed areas of the country. The rational is that building infrastructure in lagging areas will directly create construction jobs and facilitate broader economic growth.
Will building highways in America’s disadvantaged communities spur growth and transform local economies? Are these good public investments?
Lessons from our own history suggest probably not.
In the 1960s, politicians such as JFK made campaign stops in places like West Virginia during the democratic primary. They were struck by the abject poverty they witnessed. In response to what he saw, JFK made campaign promises to funnel money to West Virginia and Eastern Kentucky. Following Kennedy’s assassination, President Johnson continued to lobby Congress to send special funds to the broader Appalachian region.
Picture from West Virginia Public Radio.
In 1965 these lobbying efforts culminated in the creation of the Appalachian Regional Commission (ARC). The ARC was charged with alleviating poverty in Appalachia. Today, the ARC serves counties spread over 13 states, ranging from southern New York to northern Mississippi. Over the last 50 years, the ARC has received approximately $34 billion in appropriations. These funds have primarily been used to construct a 3,000 mile highway network, known as the Appalachian Development Highway System (ADHS). Spending on the network has accounted for about two-thirds of the ARC’s budget.
What has been the impact of the Appalachian Development Highway System?
My recent research (joint with Taylor Jaworski) quantifies the impact that the construction of the ADHS has had on the national economy since the 1960s. To understand its impact, we use a combination of modeling tools from international trade theory and geography that relate changes in transportation costs to economic activity. When the improved roads are built, transportation costs drop, and this allows people and firms to move to take advantage of the better roads. Once we understand the relationship between transportation costs and economic activity, we can then consider what economic activity would look like today had the ADHS never been built.
We have three key findings: (1) nationally, the construction of the ADHS increased income by 0.4 percent (2) about half of the benefits occur in counties outside of the ARC (3) despite these modest gains, they are not large enough to break the cycle of poverty in Appalachia. Had the ADHS not been built, incomes in Appalachia would be lower than they are today. However, the region is still in decline, so at best the construction of the ADHS only softened the fall.
Trying to improve lagging locations with transportation investments is difficult because the effects are not unambiguously positive for the location. Better infrastructure means that local businesses are better connected with markets outside their region, which makes it possible to sell goods to new customers. Yet at the same time, it exposes local businesses to more competition from outside markets. If once isolated local firms can’t compete, they go out of business.
Lower transportation costs may also benefit firms shipping goods across the country, with little direct impact in the territory where the investment took place. Better infrastructure also makes it easier for people to leave distressed areas, which significantly limits the impacts of regionally targeted policies. In the case of the ADHS, when Appalachia became better connected, people left.
So if we shouldn’t target specific regions with infrastructure, what can policy makers do? Our work suggests that the biggest bang for the infrastructure buck comes from major arterial highways that cross the entire nation, providing better connections coast to coast, or between ports of entry that connect Canada and Mexico. Why is this the case? Transcontinental connections facilitate trade across the United States and encourage widespread growth while also allowing people to move to areas with more economic opportunities.
Dr. Carl Kitchens is an assistant professor in the Department of Economics.
The feature image is from WikiVisually.