The Effects of Highway Improvement Projects on Nearby Business Activity

Abstract

This report analyzes how state-funded highway improvement projects in the seven county Twin Cities metropolitan area affected businesses in adjacent Census Tracts. We first identify demographic factors associated with the temporal and financial prioritization of some projects over others, finding that the per capita income of a Census Tract is associated with it featuring more heavily prioritized highway improvement construction. We then turn to the effects of highway improvement construction and operation, using results from the previous analysis to account for endogeneity of improvement timing. While we find largely null results of highway improvement on sales, employment, establishment counts, and turnover for both single-establishment and multiple-establishment firms, we also find that pooling data masks several sources of effect heterogeneity. Specifically, we find that single-establishment firms experience negative sales effects from construction when tracts are affected only by infrastructure replacement projects (improvements that do not affect traffic operations, i.e., a bridge replacement). Furthermore, negative sales and employment effects occur after construction is completed for single-establishment firms in urban areas and in tracts affected by longer bouts of construction. Meanwhile, in suburban areas, some modest gains accrue to multiple-establishment firms. These results suggest that regional planners need to account for potential externalities from highway construction on particularly nearby small business establishments.