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Significance of Infrastructure Investment for Economic Growth

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  • Younis, Fizza

Abstract

The study attempts to examine the impact of infrastructure investment on economic growth in Pakistan. For this purpose, social and economic infrastructure indices are constructed using Principle Component Analysis and VECM is applied to estimate the long-run as well as short-run relationship between the variables. The study follows the theoretical background of Barro’s (1990) model of government expenditure. The theory suggests that infrastructure investment can have negative impact on economic growth if marginal product of such investment falls below price of capital. The results show that long-run impact of private investment and social infrastructure investment on economic growth is positive and significant while economic infrastructure investment affects economic growth negatively. In short-run, on the other hand, infrastructure investment does not have any significant impact on economic growth. But national savings rate and private investment rate show negative impact on growth. Whereas, price of capital and direct tax have positive impact on economic growth. Diagonastic tests are also performed to test validity of the model. The results have important policy implications as the study reveals inefficiency of infrastructure investment in Pakistan. There is need to divert resources from economic infrastructure to social infrastructure which has the potential to increase growth rate.

Suggested Citation

  • Younis, Fizza, 2014. "Significance of Infrastructure Investment for Economic Growth," MPRA Paper 72659, University Library of Munich, Germany, revised 01 Jun 2015.
    • Handle: RePEc:pra:mprapa:72659
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    References listed on IDEAS

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    3. Bakari, Sayef & Tiba, Sofien, 2020. "Does Agricultural Investment Still Promote Economic Growth in China? Empirical Evidence from ARDL Bounds Testing Model," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 8(4), October.
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    6. Bakari, Sayef & El Weriemmi, Malek, 2022. "Exploring the Impact of Agricultural Investment on Economic Growth in France," MPRA Paper 113970, University Library of Munich, Germany.

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    More about this item

    Keywords

    Economic growth; Infrastructure investment; Economic and social infrastructure; Empirical analysis; Vector error correction model;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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