Economic Growth In South Asia: Role Of Infrastructure

The paper examines the output elasticity of infrastructure for four South Asian countries viz., India,Pakistan, Bangladesh and Sri Lanka using Pedroni’s panel cointegration technique for the period 1980-2005. In this context we develop an index of infrastructure stocks and estimate growth accounting equations to investigate the impact of infrastructure on output and per capita income. The study finds a long-run equilibrium relationship between output (and per capital income) and infrastructure along with other relevant variables such as gross domestic capital formation, labour force, exports, total international trade and human capital. The results reveal that fixed capital formation, labour force, export and expenditure on human capital exhibit a positive contribution to output. More importantly infrastructure development contributes significantly to output growth in South Asia. Further, the panel causality analysis shows that there is mutual feedback between total output and infrastructure development where as there is only one-way causality from infrastructure to per capita income.