Development of the model to examine the impact of infrastructure on economic growth and convergence
Core infrastructure, which covers transportation, information and communication (ICT), energy, water and sanitation systems, plays a significant role in economic growth. The development of core infrastructure – one of the European Union (EU) Cohesion Policy (CP) priorities – is heavily funded. However, it remains unclear whether these investments achieve the main aim, i.e. contribute to economic growth and convergence between EU countries and especially regions. A theoretical model addressing the identified issues is needed to assess the impact of infrastructure on economic growth and convergence comprehensively and as accurately as possible. To reach this aim, first, we have disclosed the definition of infrastructure and its structure. Also, we discussed different approaches to the relationship between infrastructure and economic growth. We developed a theoretical model for evaluating infrastructure impact on economic growth and convergence. Moreover, based on the neoclassical approach, we specified an econometric model that includes indicators of different types of infrastructure and assessed growth and convergence outcomes of infrastructure development. Even though we find that infrastructure positively affects growth and convergence, the estimated impact is not statistically significant except for some types of ICT and transport infrastructure.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Ansar, A., Flyvbjerg, B., Budzier, A., & Lunn, D. (2016). Does infrastructure investment lead to economic growth or economic fragility? Evidence from China. Oxford Review of Economic Policy, 32, 360–390. https://doi.org/10.1093/oxrep/grw022
Apurv, R., & Uzma, S. H. (2020). The impact of infrastructure investment and development on economic growth on BRICS. Indian Growth and Development Review, 14(1), 122–147. https://doi.org/10.1108/IGDR-01-2020-0007
Arif, U., Javid, M., & Khan, F. N. (2020). Productivity impact of infrastructure development in Asia. Economic Systems, 45(1), 1–12. https://doi.org/10.1016/j.ecosys.2020.100851
Azevedo, I. M. L. (2014). Consumer end-use energy efficiency and rebound effects. Annual Review Environmental Resources, 39, 393–418. https://doi.org/10.1146/annurev-environ-021913-153558
Batool, I., & Goldman, K. (2020). The role of public and private transport infrastructure capital in Economic growth. Evidence from Pakistan. Research in Transport Economics, 88, 100886. https://doi.org/10.1016/j.retrec.2020.100886
Bertinelli, L., & Strobl, E. (2007). Urbanisation, urban concentration and economic development. Urban Studies, 44(13), 2499–2510. https://doi.org/10.1080/00420980701558442
Brambor, T., Clark, W., & Golder, M. (2006). Understanding interaction models: Improving empirical analyses. Political Analysis, 14(1), 63–82. https://doi.org/10.1093/pan/mpi014
Bridge,G., Özkaynak, B., & Turhan, E. (2018). Energy infrastructure and the fate of the nation: Introduction to special issue. Energy Research & Social Science, 41, 1–11. https://doi.org/10.1016/j.erss.2018.04.029
Butkus, M., Cibulskiene, D., Maciulyte-Sniukiene, A., & Matuzeviciute, K. (2018). What is the evolution of convergence in the EU? Decomposing EU disparities up to NUTS 3 Level. Sustainability, 10, 1552. https://doi.org/10.3390/su10051552
Calderón, C., & Servén, L. (2004). The effects of infrastructure development on growth and income distribution (Working Papers No. 270). Central Bank of Chile, Warshington, DC, USA. https://doi.org/10.1596/1813-9450-3400
Canning, D., & Pedroni, P. (2004). The effects of infrastructure on long run economic growth (Working Papers 2004-04). Department of Economics, Williams College.
Cigu, E., Agheorghiesei, D. T., Gavriluta (Vatamanu), A. F., & Toader, E. (2019). Transport infrastructure development, public performance and long-run economic growth: A case study for the EU-28 countries. Sustainability, 11(1), 67. https://doi.org/10.3390/su11010067
Corporate Finance Institute. (2021). Public infrastructure. https://corporatefinanceinstitute.com/resources/knowledge/economics/public-infrastructure/
Crescenzi, R., & Rodríguez-Pose, A. (2012). Infrastructure and regional growth in the European Union. Papers in Regional Science, 91(3), 487–513. https://doi.org/10.1111/j.1435-5957.2012.00439.x
Diamond, D., & Spence, N. (1989). Infrastructure and industrial costs in British Industry. HMSO.
Donou-Adonsou, F., Lim, S., & Mathey, S. A. (2016). Technological progress and economic growth in Sub-Saharan Africa: Evidence from telecommunications infrastructure. International Advances in Economic Research, 22, 65–75. https://doi.org/10.1007/s11294-015-9559-3
Dritsakis, N., & Stamatiou, P. (2016). Trade openness and economic growth: A panel cointegration and causality analysis for the newest EU countries. The Romanian Economic Journal, 59, 45–60.
Elburz, Z., & Cubukcu, K. M. (2021). Spatial effects of transport infrastructure on regional growth: The case of Turkey. Spatial Information Research, 29, 19–30. https://doi.org/10.1007/s41324-020-00332-y
Elysia, V., & Wihadanto, A. (2020). The impact of poor sanitation on tourism development: A global review. Indonesian Journal of Urban and Environmental Technology, 3(2), 220–231. https://doi.org/10.25105/urbanenvirotech.v3i2.6720
European Commission. (2014). European Economy. Infrastructure in the EU: Developments and impact on growth (Occasional Papers 203). Brussels, Belgium.
Farhadi, M. (2015). Transport infrastructure and long-run economic growth in OECD countries. Transportation Research Part A, 74, 73–90. https://doi.org/10.1016/j.tra.2015.02.006
Fetahi-Vehapi, M., Sadiku, L., & Petkovski, M. (2015). Openness on economic growth: An evidence for South East European Cauntries. Procedia Economics and Finance, 19, 17–26. https://doi.org/10.1016/S2212-5671(15)00004-0
Fourie, J. (2006). Economic infrastructure: A review of definitions, theory and empirics. South African Journal of Economics, 74(3), 530–556. https://doi.org/10.1111/j.1813-6982.2006.00086.x
Frischmann, B. M. (2012). Infrastructure: The social value of shared resources. Oxford University Press. https://doi.org/10.1093/acprof:oso/9780199895656.001.0001
Haftu, G. G. (2019). Information communications technology and economic growth in Sub-Saharan Africa: A panel data approach. Telecommunication Policy, 43, 88–99. https://doi.org/10.1016/j.telpol.2018.03.010
Hirschman, A. O. (1958). The strategy of economic development. Yale University Press.
Kallal, R., Haddaji, A., & Ftiti, Z. (2021). ICT diffusion and economic growth: Evidence from the sectorial analysis of a periphery country. Technological Forecasting & Social Change, 162, 120403. https://doi.org/10.1016/j.techfore.2020.120403
Kumo, W. L. (2012). Infrastructure investment and economic growth in South Africa: A granger causality analysis (Working Paper Series No. 160). African Development Bank, Tunis, Tunisia.
Kyriacou, A. P., Muinelo-Gallo, L., & Roca-Sagalés, O. (2019). The efficiency of transport infrastructure investment and the role of government quality: An empirical analysis. Transport Policy, 74, 93–102. https://doi.org/10.1016/j.tranpol.2018.11.017
Lenz, N. V., Skender, H. P., & Adelajda Mirković, P. A. (2018). The macroeconomic effects of transport infrastructure on economic growth: the case of Central and Eastern EU member states. Economic Research-Ekonomska Istraživanja, 31(1), 1953–1964. https://doi.org/10.1080/1331677X.2018.1523740
Lin, T.-Y., & Chiu, S.-H. (2018). Sustainable performance of low-carbon energy infrastructure investment on regional development: Evidence from China. Sustainability, 10, 4657. https://doi.org/10.3390/su10124657
Maneejuk, P., & Yamaka, W. (2020). An analysis of the impacts of telecommunications technology and innovation on economic growth. Telecommunications Policy, 44, 102038. https://doi.org/10.1016/j.telpol.2020.102038
Maparu, T. S., & Mazumder, T. N. (2017). Transport infrastructure, economic development and urbanization in India (1990–2011): Is there any causal relationship? Transport Research Part A, 100, 319–336. https://doi.org/10.1016/j.tra.2017.04.033
Meersman, H., & Nazemzadeh, M. (2017). The contribution of transport infrastructure to economic activity: The case of Belgium. Case Studies on Transport Policy, 5, 316–324. https://doi.org/10.1016/j.cstp.2017.03.009
Mitra, A., Sharma, C., & Véganzonès-Varoudakis, M.-A. (2016). Infrastructure, information & communication technology and firms’ productive performance of the Indian manufacturing. Journal of Policy Modeling, 38, 353–371. https://doi.org/10.1016/j.jpolmod.2016.02.013
Muvawala, J., Sebukeera, H., & Ssebulime, K. (2020). Socio-economic impacts of transport infrastructure investment in Uganda: Insight from frontloading expenditure on Uganda’s urban roads and highways. Research in Transportation Economics, 88, 100971. https://doi.org/10.1016/j.retrec.2020.100971
Nair, M., Pradhan, R. P., & Arvin, M. B. (2020). Endogenous dynamics between R&D, ICT and economic growth: Empirical evidence from the OECD countries. Technology in Society, 62, 101315. https://doi.org/10.1016/j.techsoc.2020.101315
National Research Council. (2009). Sustainable critical infrastructure systems: A framework for Meeting 21st Century Imperatives: Report of a workshop. The National Academies Press.
Newey, W. K., & West, K. D. (1987). Hypothesis testing with efficient method of moments estimation. International Economic Review, 28, 777–787. https://doi.org/10.2307/2526578
Nijkamp, P. (1986). Technological change, employment and spatial dynamics. Springer. https://doi.org/10.1007/978-3-642-46578-9
Noam, E. M. (1994). Principles for the Communications Act of 2034: The Superstructure of Infrastructure. Federal Communications Law Journal, 47(2), 27.
Nouira, R., & Kouni, M. (2021). Optimal government size and economic growth in developing and MENA countriesL A dunamic panel threshold analysis. Middle East Development Journal, 13, 59–77. https://doi.org/10.1080/17938120.2021.1898231
Nurkse, R. (1952). Some international aspects of the problem of economic development. The American Economic Review, 42(2), 571–583.
Olczyk, M., & Kuc-Czarnecka, M. (2022). Digital Transformation and Economic Growth – DESI improvement. Technological and Economic Development of Economy, 28(3), 775–803. https://doi.org/10.3846/tede.2022.16766
Ortiz, A. L., Rodríguez, J. C., & Gómez, M. (2020). E-Commerce development in Europe: A panel data analysis 2003–2017. Business Administration and Management, 23(4), 89–101. https://doi.org/10.15240/tul/001/2020-4-006
Oyeniran, W. I., & Onikosi-Alliyu, S. (2016). Information and telecommunication infrastructure and economic growth: An experience from Nigeria. Serbian Journal of Management, 11(2), 275–289. https://doi.org/10.5937/sjm11-8174
Palei, T. (2015). Assessing the impact of infrastructure on economic growth and global competitiveness. Procedia Economics and Finance, 23, 168–175. https://doi.org/10.1016/S2212-5671(15)00322-6
Pandey, V. (2020). Energy infrastructure for sustainable development. In W. Leal Filho, A. Azul, L. Brandli, A. Lange Salvia, & T. Wall (Eds). Affordable and clean energy. Encyclopedia of the UN sustainable development goals. Springer. https://doi.org/10.1007/978-3-319-71057-0_77-1
Panizza, U., & Presbitero, A. F. (2014). Public debt and economic growth: Is there a causal effect? Journal of Macroeconomics, 41, 21–41. https://doi.org/10.1016/j.jmacro.2014.03.009
Pradhan, R. P., Mallik, G., & Bagchi, T. P. (2018). Information communication technology (ICT) infrastructure and economic growth: A causality evinced by cross-country panel data. IIMB Management Review, 30, 91–103. https://doi.org/10.1016/j.iimb.2018.01.001
Rietveld, P., & Bruinsma, F. (1998). Is transport infrastructure effective? Transport infrastructure and accessibility: Impact on the space economy. Springer. https://doi.org/10.1007/978-3-642-72232-5_3
Saidi, M., Shahbaz, M., & Akhtar, P. (2018). The long-run relationships between transport energy consumption, transport infrastructure, and economic growth in MENA countries. Transport Research Part A, 111, 78–95. https://doi.org/10.1016/j.tra.2018.03.013
Sanctuary, M., Hakan, T., & Laurence, H. (2005). Making water a part of economic development: The economic benefits of improved water management and services (SIWI report). https://www.ircwash.org/sites/default/files/Sanctuary-2005-Making.pdf
Siljak, D., & Nagy, S. G. (2019). Convergence and transition of the Eastern Partnership Countries towards the European Union. Entrepreneurship Business and Economics Review, 7(3), 221–235. https://doi.org/10.15678/EBER.2019.070312
Stupak, J. M. (2018). Economic impact of infrastructure investment (CRS report 7-5700). Congressional Research Service.
Toader, E., Firtescu, B. N., Roman, A., & Anton, S. G. (2018). Impact of information and communication technology infrastructure on economic growth: An empirical assessment for the EU countries. Sustainability, 10, 3750. https://doi.org/10.3390/su10103750
Torrisi, G. (2009). Infrastructure and economic performance: A critical comparison across four approaches (MPRA Paper No. 25849). https://mpra.ub.uni-muenchen.de/25849/1/MPRA_paper_25849.pdf
Untari, R., Priyarson, D. S., & Novianti, T. (2019). Impact of Information and Communication Technology (ICT) infrastructure on economic growth and income inequality in Indonesia. International Journal of Scientific Research in Science, Engineering and Technology, 6(1), 109–116. https://doi.org/10.32628/IJSRSET196130
Wang, C., Lim, M. K., Zhang, X., Zhao, L., & Lee, P. T.-W. (2020a). Railway and road infrastructure in the Belt and Road Initiative countries: Estimating the impact of transport infrastructure on economic growth. Transportation Research Part A, 134, 288–307. https://doi.org/10.1016/j.tra.2020.02.009
Wang, J., Zuoa, W., Rhode-Barbarigosb, L., Lua, X., Wangc, J., & Lin, Y. (2019). Literature review on modeling and simulation of energy infrastructures from a resilience perspective. Reliability Engineering & System Safety, 183, 360–373. https://doi.org/10.1016/j.ress.2018.11.029
Wang, N., Zhu, Y., & Yang, T. (2020b). The impact of transportation infrastructure and industrial agglomeration on energy efficiency: Evidence from China’s industrial sectors. Journal of Cleaner Production, 244, 118708. https://doi.org/10.1016/j.jclepro.2019.118708
Yang, F., Zhang, S., & Sun, C. (2020). Energy infrastructure investment and regional inequality: Evidence from China’s power grid. Science of the Total Environment, 749, 142384. https://doi.org/10.1016/j.scitotenv.2020.142384
Zhang, X. Q., & Jerome, A. (2011). Infrastructure for economic development and poverty reduction in Africa. United Nations Human Settlements Programme (UN-HABITAT), Nairobi GPO Kenya.
Zungu, L. T., & Greyling, L. (2021). Givernment size and economic growth in African emerging economies: Does the BARS curve exist? International Journal of Social Economies, 49(3), 356–371. https://doi.org/10.1108/IJSE-01-2021-0016