Road Transport Infrastructure in India
Posted: 9 Jun 2010
Date Written: June 8, 2010
Creation of road transport infrastructure, through its direct and indirect effects, has a bearing on sustainability of growth and overall development of a country. The models based on production or cost functions, that incorporate infrastructure, simply assume a positive effect on macroeconomic variables such as output, employment and gross private capital formation. These models are no longer satisfactory to take to the data because they ignore any feedback effect. This paper uses vector auto regression (VAR) approach, as an alternative, to analyze the impact of road infrastructure on macroeconomic variables. The results suggest that the long-run elasticity of output with respect to public capital is positive, giving support to the hypothesis that public capital is productive. It also suggests that in the long term, public investment crowds in both private capital and employment. However, increases in the length of national highways seem to have just the opposite effect, not only it crowds out private investment and employment but also have negative long term impact on output and employment.
Keywords: Production Function, Cost Function, Feedback Effect, VAR, Output, Employment, Gross Private Capital Formation
JEL Classification: B41, C01, C22, R42
Suggested Citation: Suggested Citation