Productivity Growth and Infrastructure Related Sectors

There is no complete agreement on which infrastructure sector matters most for growth, with results that may depend on the data and methodology employed. We develop a framework to explore the performance of infrastructure-related sectors in terms of their contribution to sectoral productivity growth. Based on a selection of 25 countries from the GGDC global data set on annual labor productivity for 10 sectors across 4 decades and chosen controls, we use an automatic algorithm to select variables and estimate short and long-run effects. Estimated elasticities show differential effects across sectors and the quantitative magnitude of these effects is quite significant. Productivity shocks in energy infrastructure dominates those in transport infrastructure for aggregate effects, but they operate indirectly through agriculture productivity while transport improvements have direct impacts. Our results do not seem to support the hypothesis that infrastructure productivity shocks increase productivity gaps or disparities among sectors. Finally, we illustrate the relative magnitude of direct/indirect effects and sectoral channels simulating infrastructure productivity shocks for the LAC region.