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Infrastructure and Economic Growth

  • María Teresa Ramírez

    ()

  • Hadi Salehi Esfahani

The relationship between infrastructure capital and economic growth has been controversial. A number of empirical studies have found very high returns to infrastructure investment (Aschauer, 1989; Canning and Fay, 1993). But, the robustness of the results have been questioned in other empirical studies and surveys (Gramlich, 1994; Munnell, 1992).2 A major problem seems to be that interactions between infrastructure and GDP are mediated in the short run by a host of variables that cannot all be captured in statistical studies, and in the long run causality between infrastructure and GDP cannot be established. While infrastructure may give rise to higher productivity and output, past and future economic growth also tend to raise the demand for infrastructure services and induce increased supply.3 Moreover, infrastructure inadequacies may not have tangible output consequences in the short or medium run because infrastructure services have substitutes and the assets may be used with different intensities.4 As a result, the empirical basis of the case for high returns to infrastructure investment has been elusive.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 123.

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Handle: RePEc:bdr:borrec:123
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  1. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
  2. María Teresa Ramírez & Hadi Salehi Esfahani, 1999. "Infraestructure And Economic Growth," BORRADORES DE ECONOMIA 002876, BANCO DE LA REPÚBLICA.
  3. Charles R. Hulten, 1996. "Infrastructure Capital and Economic Growth: How Well You Use It May Be More Important Than How Much You Have," NBER Working Papers 5847, National Bureau of Economic Research, Inc.
  4. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  5. Ernst R. Berndt & Bengt Hansson, 1991. "Measuring the Contribution of Public Infrastructure Capital in Sweden," NBER Working Papers 3842, National Bureau of Economic Research, Inc.
  6. Spiller, Pablo T, 1996. "Institutions and Commitment," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 421-52.
  7. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
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