Physical infrastructure and economic growth

The existing literature on the relationship between infrastructure and economic growth is inconclusive. We estimate the effect on GDP of three main categories of infrastructure – transport, electricity, and telecommunications – using data from 87 countries over the period 1992–2017. This study uses more recent data than previous research and includes new types of infrastructure such as mobile phones. Our main estimates use the PMG estimator that allows us to test for the weak exogeneity of the infrastructure variables. The key finding of the study is that an increase in infrastructure, especially electricity generation capacity and telecommunications, has large long-run positive effects on GDP, though the short-run effects are much smaller and are less than zero for roads and railways. Also, the effects of electricity and communication infrastructure are higher relative to the effects of transport infrastructure in developing economies than in industrialized economies.