The Direct and Indirect (Spillover) Effects of Productive Government Spending on State Economic Growth
Dr. Andrew Ojede is an Assistant Professor of economics in the Department of Finance and Economics, McCoy College of Business Administration, Texas State University, San Marcos, TX 78666, USA. His e-mail address is: [email protected]. Dr. Bebonchu Atems is an Associate Professor of Economics in the School of Business, Clarkson University, Potsdam, NY 13699, USA. His e-mail address is: [email protected]. Dr. Steven Yamarik is a Professor in the Department of Economics, California State University, Long Beach, Long Beach, CA 90840, USA. His e-mail address is: [email protected]. The authors would like to thank James LeSage and Yao-Yu Chih and two other anonymous referees for valuable comments on earlier drafts. All other errors of course remain our own.
Abstract
Using data on 48 contiguous U.S. states and a spatial econometric approach, this paper examines short- and long-run effects of productive higher education and highway infrastructure spending financed by different revenue sources on state economic growth. Following the Lagrange Multiplier, Wald, and Likelihood Ratio tests, the data are found to be characterized by both spatial lag and spatial error processes, leading to the estimation of a dynamic spatial Durbin model. By decomposing results of the dynamic spatial Durbin model into short- and long-run direct as well as indirect (spillover) effects, we show that accounting for spillover effects provides a more comprehensive approach to uncovering the effects of productive government spending on growth. We find that, regardless of the financing source, productive higher education and highway spending have statistically significant short- and long-run direct as well as spillover effects on state income growth.
