Institutions, Infrastructure, and Economic Growth

35 Pages Posted: 3 Dec 1999

See all articles by Hadi Salehi Esfahani

Hadi Salehi Esfahani

University of Illinois at Urbana-Champaign

Maria Teresa Ramirez

Central Bank of Colombia

Multiple version iconThere are 2 versions of this paper

Date Written: November 1999


This paper develops a structural model of infrastructure and output growth that specifies the ways in which country characteristics and policies enter the infrastructure-GDP interactions and lead to heterogeneity of steady states and convergence rates across countries and over time. We show that the model can be specified as an identifiable recursive system. Cross-country estimates of the model indicate that the contribution of infrastructure services to GDP is substantial and in general exceeds the cost of provision of those services. By searching for the variables that account for the heterogeneity, we draw attention to the mechanisms through which various factors influence growth. The findings also shed light on the factors that shape a country's response to its infrastructure needs and offer policy implications for facilitating the removal of infrastructure inadequacies. Although lack of data limits the level of detail in which one can identify such variables, we find a number of relevant and important factors and show that the institutional context in which economic policies form plays an important role in infrastructure development.

JEL Classification: O4, O57, H54, L33, L9

Suggested Citation

Esfahani, Hadi Salehi and Ramirez, Maria Teresa, Institutions, Infrastructure, and Economic Growth (November 1999). Available at SSRN: or

Hadi Salehi Esfahani (Contact Author)

University of Illinois at Urbana-Champaign ( email )

Department of Economics
1206 South Sixth Street, 210DKH
Champaign, IL 61820
United States
217-333-2681 (Phone)
217-333-1398 (Fax)

Maria Teresa Ramirez

Central Bank of Colombia ( email )

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