The Effects of Infrastructure Development on Growth and Income Distribution

43 Pages Posted: 20 Apr 2016

See all articles by César A. Calderón

César A. Calderón

Central Bank of Chile

Luis Servén

World Bank - Development Research Group (DECRG)

Date Written: September 2004

Abstract

Calderon and Serven provide an empirical evaluation of the impact of infrastructure development on economic growth and income distribution using a large panel data set encompassing over 100 countries and spanning the years 1960-2000. The empirical strategy involves the estimation of simple equations for GDP growth and conventional inequality measures, augmented to include, among the regressors, infrastructure quantity and quality indicators, in addition to standard controls. To account for the potential endogeneity of infrastructure (as well as that of other regressors), the authors use a variety of generalized-method-of-moments (GMM) estimators based on both internal and external instruments and report results using both disaggregated and synthetic measures of infrastructure quantity and quality. The two robust results are: (1) growth is positively affected by the stock of infrastructure assets, and (2) income inequality declines with higher infrastructure quantity and quality. A variety of specification tests suggests that these results do capture the causal impact of the exogenous component of infrastructure quantity and quality on growth and inequality. These two results combined suggest that infrastructure development can be highly effective to combat poverty. Furthermore, illustrative simulations for Latin American countries suggest that these impacts are economically quite significant and highlight the growth acceleration and inequality reduction that would result from increased availability and quality of infrastructure.

This paper - a joint product of the Finance, Private Sector, and Infrastructure Department and the Office of the Chief Economist, Latin America and the Caribbean Region - is part of a larger effort in the region to assess the effects of infrastructure development.

Keywords: Infrastructure, Growth, Income Inequality

JEL Classification: H54, O54

Suggested Citation

Calderon, Cesar A. and Servén, Luis, The Effects of Infrastructure Development on Growth and Income Distribution (September 2004). World Bank Policy Research Working Paper No. 3400. Available at SSRN: https://ssrn.com/abstract=625277

Cesar A. Calderon (Contact Author)

Central Bank of Chile ( email )

Agustinas 1180
Santiago
Chile

Luis Servén

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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