Numerous studies have examined the effect of local fiscal policy on business activity. Few have emphasised local public services and fewer still have examined the effect of local fiscal policy on the composition of business activity. Using newly derived estimates of regional public infrastructure, the effect of public capital on the factor intensity of the manufacturing sector of 36 SMSAs during the 1970-78 period is examined. The findings of this study indicate that public investment can play an important role in determining the composition of a region's industrial sector.
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