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Public Infrastructure, Education, and Economic Growth: Region-Specific Complementarity in a Half-Century Panel of States

Stone, Joe and Bania, Neil and Gray, Jo Anna (2010): Public Infrastructure, Education, and Economic Growth: Region-Specific Complementarity in a Half-Century Panel of States.

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Abstract

We find region-specific complementarity between investments in public infrastructure and education, both k-12 and postsecondary. The complementarity helps to explain how regions capture returns to investments in education even when residents are mobile, and is strong enough for the effect of tax-financed expenditures on either public infrastructure or education to be significantly positive when spending on the other is high, even though the independent effect of either one is negative. Effects are identified using a recursive structure, very long lags, GMM-instrumental variables, and multiple controls for heterogeneity. Estimates are robust across identification strategies, estimators, and instruments.

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