The Effects of Infrastructure Investment: A Two-Sector Dynamic Computable General Equilibrium Analysis for Ohio

The effects of increased public investment on regional output and welfare in Ohio are investigated using a regional dynamic computable general equilibrium model. Public investment affects the growth of the state economy, although the magnitude of the effect depends on the public capital elasticity. Our simulations indicate that public capital is underprovided in Ohio in base year 1990. Accounting for congestion in the use of infrastructure diminishes the positive effects of increased public investment only slightly. Beyond some level, more infrastructure investment does not increase the household welfare and can actually reduce it.