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PUBLIC INFRASTRUCTURE AND EXTERNALITIES IN U.S. MANUFACTURING: EVIDENCE FROM THE PRICE-AUGMENTING AIM COST FUNCTION

Published online by Cambridge University Press:  04 April 2012

Guohua Feng  and
Apostolos Serletis
Guohua Feng
Affiliation:
University of North Texas
Apostolos Serletis*
Affiliation:
University of Calgary
*
Address correspondence to: Apostolos Serletis, Department of Economics, University of Calgary, Calgary, Alberta, T2N 1N4, Canada; e-mail: Serletis@ucalgary.ca.
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Abstract

In this paper, we propose a price-augmenting asymptotically ideal model (AIM) cost function to investigate the effects of public infrastructure on the performance of the U.S. manufacturing industry, using KLEMS data over the period from 1953 to 2001. In doing so, we make a distinction between the productivity effect and the production factor effect of public infrastructure. This distinction allows us to focus on the more interesting productivity effect by incorporating public infrastructure into the AIM cost function through the efficiency index. Moreover, we specify the growth rate of the efficiency index as a Box–Cox function of public infrastructure and a time trend, a proxy for other technology. The excellent flexibility of our price-augmenting AIM cost function offers many insights regarding the effects of infrastructure on the U.S. manufacturing sector.

Keywords

Flexible Functional FormsAsymptotically Ideal ModelNonlinear Cost FunctionEfficiency IndexPublic Infrastructure
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 7 , October 2013 , pp. 1367 - 1410
Copyright
Copyright © Cambridge University Press 2012 

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