Beyond the obvious: Direct and indirect impacts of transport infrastructure investment on the regional economic growth

This study examines the impact of transportation infrastructure investment on regional economic growth by distinguishing between direct and indirect effects. Using data from 51 U.S. regions (50 states and Washington, D.C.) between 2007 and 2017, we employed mediation analysis and two-stage least squares (2SLS) regression to assess the causal mechanisms through which transportation infrastructure influences economic outcomes. The results revealed that transportation infrastructure directly contributes to economic growth by increasing capital stock while also generating significant indirect effects through productivity, labor markets, and traffic volume. Our findings indicate that the total effect of transportation infrastructure investment on regional economic growth is 0.135, comprising a direct effect of 0.053, a feedback loop effect of 0.051, and an indirect effect of 0.031. Notably, productivity benefits from improved infrastructure owing to enhanced market accessibility and agglomeration effects. In contrast, labor markets experience both positive and negative impacts, with congestion potentially offsetting employment gains. These findings underscore the importance of incorporating both direct and indirect effects when evaluating infrastructure policies, as failing to account for externalities, such as traffic volume, may lead to suboptimal investment decisions.