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Nexus between Infrastructure and Economic Growth: An Empirical Study in the Post-Reform period in India

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  • Ghosh, Prabir Kumar

Abstract

The purpose of this study is to examine the nexus between infrastructure and economic growth in India over the period 1991 – 2016. More specifically, this study tries to find out whether infrastructure development in the post-reform period is cointegrated with economic growth. For the said purpose, a composite infrastructure index is constructed using Principal Component Analysis (PCA) based on eight infrastructural indicator variables in the areas of physical, and social. and financial infrastructure. The methodological approaches used to analyze the nexus between infrastructure index and economic growth mainly consist of time series estimation techniques. The cointegrating nature between the infrastructure index and economic growth is checked using the Engle and Granger method of cointegration. The study further applies VAR based Granger causality test to assess the direction of causality between infrastructure and economic growth. The results reveal that infrastructure and economic growth are cointegrated and hold a long-run equilibrium relationship. However, in the short run, the results of the study find no instantaneous effect of change in infrastructure on economic growth. Finally, the results of the Granger causality test confirm the unidirectional causality from infrastructure to economic growth. Therefore, the study concludes that infrastructural development can be an effective tool for achieving sustainable economic growth.

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  • Ghosh, Prabir Kumar, 2020. "Nexus between Infrastructure and Economic Growth: An Empirical Study in the Post-Reform period in India," MPRA Paper 117709, University Library of Munich, Germany, revised May 2021.
    • Handle: RePEc:pra:mprapa:117709
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    More about this item

    Keywords

    Infrastructure; economic growth; PCA; Engle and Granger cointegration; VAR; Granger causality; sustainable economic growth.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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