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Infrastructure Capital and Economic Growth: How Well You Use It May Be More Important Than How Much You Have

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  • Charles R. Hulten
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    Abstract

    This paper shows that those low and middle income countries that use infrastructure inefficiently pay a growth penalty in the form of a much smaller benefit from infrastructure investments. The magnitude of this penalty is apparent when the growth experience of Africa is compared with that of East Asia: over one-quarter of the differential growth rate between these two regions can be attributed to the difference in effective use of infrastructure resources. At the same time, the difference due to new public capital formation is negligible. An even stronger impression is conveyed by the comparison of high and low growth rate economies. Here, more than forty percent of the growth differential is due to the efficiency effect, making it the single most important explanator of differential growth performance.

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    File URL: http://www.nber.org/papers/w5847.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5847.

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    Date of creation: Dec 1996
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    Handle: RePEc:nbr:nberwo:5847

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    1. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(2), pages 407-37, May.
    2. Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1996. "The composition of public expenditure and economic growth," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 77, China Economics and Management Academy, Central University of Finance and Economics.
    3. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S103-26, October.
    4. David A. Aschauer, 1989. "Public investment and productivity growth in the Group of Seven," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 17-25.
    5. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
    6. Weitzman, Martin L, 1970. "Optimal Growth with Scale Economies in the Creation of Overhead Capital," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 37(4), pages 555-70, October.
    7. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-80, September.
    8. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1203-50, November.
    9. Malcolm Knight & Norman Loayza & Delano Villanueva, 1993. "Testing the Neoclassical Theory of Economic Growth: A Panel Data Approach," IMF Staff Papers, Palgrave Macmillan, vol. 40(3), pages 512-541, September.
    10. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(3), pages 417-458, December.
    11. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
    12. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
    13. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
    14. Alicia H. Munnell, 1990. "Why has productivity growth declined? Productivity and public investment," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-22.
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