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33 Cato J. 1 (2013)
Is Public Expenditure Productive: Evidence from the Manufacturing Sector in U.S. Cities, 1880-1920

handle is hein.journals/catoj33 and id is 1 raw text is: IS PUBLIC EXPENDITURE PRODUCTIVE? EVIDENCE FROM THE MANUFACTURING SECTOR IN U.S. CITIES, 1880-1920 Melissa Yeoh and Dean Stansel This article provides the first examination of the relationship between public expenditures and labor productivity that focuses on municipalities, rather than states or nations. We use data for 1880-1920, a period of rapid industrialization in which there were both high levels of public infrastructure spending and rapid grovth of productivity. We use a simple Cobb-Douglas production finetion to model labor productivity in the manumfacturing sector, letting total factor productiAt depend on productive public expenditure by city governments-that is, on public spending that may raise the pro- ductty of labor and encourage human capital accumulation. Using a data set of 45 of the largest cities in the United States, we find no statistically significant relationshlip behveen productive public expenditure and labor productivty in the manuifadurfing sector during this period. These findings are robust to three different econometric approaches. We do, however, find a strongly positive and statistically significant relationship between private capital and labor productivity. Our results are consistent wvith those of much of the literature Catolo,,nal, Vol. 33, No. 1 (Winter 2013). Copyight © Cato Institute. All iights reseirxed. Melissa Yeoh is ar Assistant Professor of Economics at Berry College, and Dean Stmasel is an Associate Professor of Economics at Florida Gulf Coast University. They thank Noel Campbell, Garth Heutel, Brian McNamara, Mitch Mitchell, and Bob Mulligan for helpful comments on a pre-vious version of this article and Amny Weisgarber for research assistnnce. Yeoh's work was supported by the Kik Dornbush Summer Research Giant at Vanderbilt University. She thfmks Jeremy Atack, Martha Bailey, Bill Collins, Tomas C rcek, Yauqin Fan, William Hutchinson, Bob Margo, Mototsugu Shintani, md John W'hVaruzer for comments on earlier drafts.

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