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Keywords

Infrastructure, economic growth, foreign direct investment, fdi, oecd, growth theory, pmg estimator

Abstract

Growth theory asserts that infrastructure investments promote economic growth by improving the quality of life and increasing private sector productivity . Transport services, water utility services and telecommunication services provide better facilities to attract FDI (foreign direct investment) and increase productivity across sectors. The aim of this article is to analyze whether transport infrastructure investments have a strong effect on the economic growth. It also attempts to analyze the differential impact of each type of infrastructural spending on economic growth. Our data set covers annual data from 1993 to 2015 period for 15 OECD countries (Austria, Turkey, Czech Republic, Spain, Finland, Japan, Germany, Ireland, Italy, France, Korea, Mexico, Netherlands, Poland, U.K) and China. In this study, we employ a Pool Mean Group (PMG) estimator to find long run and short run relations between the variables. Output elasticity of air transport is found to be positive and significant at five percent level and there exists a long run relationship between GDP per capita and other explanatory variables such as transport infrastructure indicators, gross capital formation and labor force. The crowding- out hypothesis is also supported by coefficients on county specific results. Our data set includes infrastructure variables such as Railways, (million passenger-km), Air transport, (freight, million ton-km), Individuals using the Internet (% of population).

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