An empirical investigation of the link between infrastructure development and poverty reduction

Purpose - India is a developing nation where the marginal benefit of infrastructure development is tremendous. The purpose of this paper is to analyze the relationship between infrastructure development and poverty reduction for India using the yearly data from 1991 to 2015. Design/methodology/approach - The authors use the principal component analysis to construct indices for four major sub-sectors, namely, transport, water and sanitation, telecommunications and energy, falling under the broad infrastructure sector and then using these sectorwise indices, the authors construct an overall index which represents infrastructure development. The authors provide evidence on the link between infrastructure development and poverty reduction by using the auto regressive distributed lag (ARDL) bound testing approach. Findings - The ARDL test results suggest that infrastructure development and economic growth reduce poverty in both long run and short run. The causality test confirms that there is a positive and unidirectional causality running from infrastructure development to poverty reduction. Research limitations/implications - The study confirms that India’s Infrastructure development plays a vital role in reducing poverty and calls for the Indian Government to adopt economic policies which are aimed at developing and strengthening the infrastructure levels and bringing in more investment in the infrastructure sector in order to help the poor population by making them exposed to better opportunities of employment and income growth, thereby achieving the goal of poverty reduction. Originality/value - This paper is a fresh and unique attempt of its kind to empirically investigate the causal relationship between infrastructure development and poverty reduction in India using modern econometric techniques.