Infrastructure and Growth: Empirical Evidence

57 Pages Posted: 16 Mar 2009  

Balázs Égert

Organization for Economic Co-Operation and Development (OECD); CESifo (Center for Economic Studies and Ifo Institute); Université Paris X Nanterre - Department of Economics; William Davidson Institute

Tomasz J. Kozluk

Organization for Economic Co-Operation and Development (OECD)

Douglas Sutherland

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Date Written: July 14, 2009

Abstract

Investment in network infrastructure can boost long-term economic growth in OECD countries. Moreover, infrastructure investment can have a positive effect on growth that goes beyond the effect of the capital stock because of economies of scale, the existence of network externalities and competition enhancing effects. This paper, which is part of a project examining the links between infrastructure and growth and the role of public policies, reports the results on the links with growth from a variety of econometric approaches. Time-series results reveal a positive impact of infrastructure investment on growth. They also show that this effect varies across countries and sectors and over time. In some cases, these results reveal evidence of possible over-investment, which may be related to inefficient use of infrastructure. Bayesian model averaging of cross-section growth regressions confirm that infrastructure investment in telecommunications and the electricity sectors has a robust positive effect on long-term growth (but not in railways and road networks). Furthermore, this effect is highly nonlinear as the impact is stronger if the physical stock is lower.

Keywords: investment, infrastructure, network industry, economic growth, co-integration, Bayesian model averaging

JEL Classification: E22, O11, O40

Suggested Citation

Égert, Balázs and Kozluk, Tomasz J. and Sutherland, Douglas, Infrastructure and Growth: Empirical Evidence (July 14, 2009). CESifo Working Paper Series No. 2700; William Davidson Institute Working Paper No. 957; OECD Economics Department Working Paper No. 685. Available at SSRN: https://ssrn.com/abstract=1360784

Balazs Egert (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Université Paris X Nanterre - Department of Economics

Nanterre Cedex, 92001
France

William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

Tomasz J. Kozluk

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Douglas Sutherland

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

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