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The Effects of Infrastructure Development on Growth and income

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  • Luis Serven
  • César Calderon

Abstract

This paper provides an empirical evaluation of the impact of infrastructure development on economic growth and income distribution using a large panel data set encompassing over 100 countries and spanning the years 1960-2000. The empirical strategy involves the estimation of simple equations for GDP growth and conventional inequality measures, augmented to include among the regressors infrastructure quantity and quality indicators in addition to standard controls. To account for the potential endogeneity of infrastructure (as well as that of other regressors) we use a variety of GMM estimators based on both internal and external instruments, and report results using both disaggregated and synthetic measures of infrastructure quantity and quality. The two robust results are: (i) growth is positively affected by the stock of infrastructure assets, and (b) income inequality declines with higher infrastructure quantity and quality. A variety of specification tests suggest that these results do capture the causal impact of the exogenous component of infrastructure quantity and quality on growth and inequality. These two results combined suggest that infrastructure development can be highly effective to combat poverty. Furthermore, illustrative simulations for Latin American countries suggest that these impacts are economically quite significant, and highlight the growth acceleration and inequality reduction that would result from increased availability and quality of infrastructure

Suggested Citation

  • Luis Serven & César Calderon, 2004. "The Effects of Infrastructure Development on Growth and income," Econometric Society 2004 Latin American Meetings 173, Econometric Society.
  • Handle: RePEc:ecm:latm04:173
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    References listed on IDEAS

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    Cited by:

    1. Aghion, Philippe & Akcigit, Ufuk & Cagé, Julia & Kerr, William R., 2016. "Taxation, corruption, and growth," European Economic Review, Elsevier, vol. 86(C), pages 24-51.
    2. Yongzheng Yang & Robert Powell & Sanjeev Gupta, 2005. "The Macroeconomic Challenges of Scaling Up Aid to Africa," IMF Working Papers 05/179, International Monetary Fund.
    3. Planning Commission, 2015. "Financing for Infrastructure Investment in G-20 Countries," Working Papers id:6476, eSocialSciences.
    4. Mercedes Delgado & Christian Ketels & Michael E. Porter & Scott Stern, 2012. "The Determinants of National Competitiveness," NBER Working Papers 18249, National Bureau of Economic Research, Inc.
    5. Tang, Ya & Xu, Jianguo & Zhang, Xun, 2017. "China's investment and rate of return on capital revisited," Journal of Asian Economics, Elsevier, vol. 49(C), pages 12-25.
    6. Nabil Chaherli & John Nash, 2013. "Agricultural Exports from Latin America and the Caribbean : Harnessing Trade to Feed the World and Promote Development," World Bank Other Operational Studies 16048, The World Bank.
    7. Rahul Anand & Saurabh Mishra & Shanaka J. Peiris, 2013. "Inclusive Growth Revisited," World Bank Other Operational Studies 22618, The World Bank.
    8. Sheahan, Megan & Liu, Yanyan & Barrett, Christopher B. & Narayanan, Sudha, 2014. "The political economy of MGNREGS spending in Andhra Pradesh:," IFPRI discussion papers 1371, International Food Policy Research Institute (IFPRI).
    9. H. Brooks, Douglas & Hasan, Rana & Lee, Jong-Wha & H. Son, Hyun & Zhuang, Juzhong, 2010. "Closing Development Gaps: Challenges and Policy Options," Asian Development Review, Asian Development Bank, vol. 27(2), pages 1-28.
    10. Agénor, Pierre-Richard & Neanidis, Kyriakos C., 2015. "Innovation, public capital, and growth," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 252-275.
    11. Patalinghug, Epictetus E., 2017. "Assessment of Planning and Programming for Capital Projects at the National and Agency Levels," Discussion Papers DP 2017-37, Philippine Institute for Development Studies.
    12. Alonso A Segura Vasi, 2006. "Management of Oil Wealth Under the Permanent Income Hypothesis; The Case of São Tomé and Príncipe," IMF Working Papers 06/183, International Monetary Fund.
    13. Shi, Yingying & Guo, Shen & Sun, Puyang, 2017. "The role of infrastructure in China’s regional economic growth," Journal of Asian Economics, Elsevier, vol. 49(C), pages 26-41.
    14. Matthew Abiodun Dada, 2015. "Theoretical Analysis of Microeconomic Effect of Public Investment," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 3(1), pages 1-7, March.
    15. Mazhar Yasin MUGHAL & Amar Iqbal ANWAR, 2012. "Remittances, inequality and poverty in Pakistan: macro and microeconomic Evidence," Working Papers 2012-2013_2, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2012.
    16. Yuko Kinishita & Chia-Hui Lu, 2006. "On the Role of Absorptive Capacity: FDI Matters to Growth," IEAS Working Paper : academic research 06-A006, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    17. Straub, Stephane & Vellutini, Charles & Warlters, Michael, 2008. "Infrastructure and economic growth in East Asia," Policy Research Working Paper Series 4589, The World Bank.
    18. Steinbuks, J., 2008. "Financial constraints and firms' investment: results of a natural experiment measuring firm response to power interruption," Cambridge Working Papers in Economics 0844, Faculty of Economics, University of Cambridge.
    19. Asongu, Simplice A. & Nwachukwu, Jacinta C., 2017. "Quality of Growth Empirics: Comparative gaps, benchmarking and policy syndromes," Journal of Policy Modeling, Elsevier, vol. 39(5), pages 861-882.
    20. Laura Tuck & Jordan Schwartz & Luis Andres, 2009. "Crisis in LAC : Infrastructure Investment and the Potential for Employment Generation," World Bank Other Operational Studies 10986, The World Bank.
    21. Parikh, Priti & Fu, Kun & Parikh, Himanshu & McRobie, Allan & George, Gerard, 2015. "Infrastructure Provision, Gender, and Poverty in Indian Slums," World Development, Elsevier, vol. 66(C), pages 468-486.
    22. Getachew, Yoseph Y. & Turnovsky, Stephen J., 2015. "Productive government spending and its consequences for the growth–inequality tradeoff," Research in Economics, Elsevier, vol. 69(4), pages 621-640.
    23. Vivien Foster & José Luis Guasch & Luis Andrés & Thomas Haven, 2008. "The Impact of Private Sector Participation in Infrastructure: Lights, Shadows, and the Road Ahead," IDB Publications (Books), Inter-American Development Bank, number 59818, February.
    24. United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) South and South-West (ed.), 2012. "Regional Cooperation for Inclusive and Sustainable Development: South and South-West Asia Development Report 2012-2013," SSWA Books and Research Reports, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) South and South-West Asia Office, number brr4.
    25. World Bank Group, "undated". "Africa's Pulse, No. 15, April 2017," World Bank Other Operational Studies 26485, The World Bank.

    More about this item

    Keywords

    Infrastructure; Growth; Income Inequality;

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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