Infrastructure, Externalities, and Economic Development: A Study of the Indian Manufacturing Industry

Posted: 29 Feb 2008

See all articles by Charles R. Hulten

Charles R. Hulten

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Esra Bennathan

University of Bristol - Department of Economics

Sylaja Srinivasan

Bank of England - Monetary Analysis

Date Written: 2006

Abstract

If infrastructure tends to generate spillover externalities, as has been the assumption in much of the development literature, one may reasonably look for evidence of such indirect effects in the accounts of manufacturing industries. Empirical support for this assumption has so far been ambiguous. This analysis of Indian data, however, reveals substantial externality effects from the states' infrastructure to manufacturing productivity. The analysis separates the direct effects of roads and electricity, as mediated by the infrastructure services purchased by manufacturing industries along with other intermediate inputs, from the indirect effects, as measured by the impact of infrastructure capacity on the Solow productivity residual. In the 20 years from 1972 to 1992, growth of road and electricity-generating capacity seems to have accounted for nearly half the growth of the productivity residual of India's registered manufacturing.

Suggested Citation

Hulten, Charles R. and Bennathan, Esra and Srinivasan, Sylaja, Infrastructure, Externalities, and Economic Development: A Study of the Indian Manufacturing Industry ( 2006). The World Bank Economic Review, Vol. 20, Issue 2, pp. 291-308, 2006. Available at SSRN: https://ssrn.com/abstract=1095560 or http://dx.doi.org/10.1093/wber/lhj007

Charles R. Hulten (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Esra Bennathan

University of Bristol - Department of Economics ( email )

8 Woodland Road
Bristol BS8 ITN
United Kingdom

Sylaja Srinivasan

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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