Government Quality and the Economic Returns of Transport Infrastructure Investment in European Regions

Abstract

Transport infrastructure investment is a cornerstone of growth-promoting strategies. However, the link between infrastructure investment and economic performance remains unclear. This may be a consequence of overlooking the role of government institutions. This paper assesses the connection between regional quality of government and the returns of different types of road infrastructure in the regions of the European Union. The results unveil the influence of regional quality of government on the economic returns of transport infrastructure. In weak institutional contexts, investment in motorways -the preferred option by governments -yields significantly lower returns than the more humble secondary roads. Government institutions also affect the returns of transport maintenance investment.

The Impact of Institutional Quality and Efficient Cohesion Investments on Economic Growth Evidence from Italian Regions

“…However, there has been a long debate on the role played by public institutions on economic development [8,46,47,50]. Efendic et al (2011) [51] find evidences of a partial positive and significant impact of institutions on output levels, even though they argue that the robustness of the analysis is partially related to the model specification choices.…”

“…Understanding the role of regional policymakers on investments financed by Structural funds is a main issue for economic scholars, in order to explain regional imbalances [7][8][9]. Nowadays, there is a widespread belief that the different administrative and political capabilities of regional governments become relevant in the implementation of development policies [10][11][12].…”

“…Some others eschew an idea of a uniform approach to regional development, recognizing the need to develop interventions tailored to the contexts and needs of specific countries [52] and regions [53,54]. Crescenzi et al (2015) [8], assume that institutions play a strong conditioning role on the effectiveness of public investments in infrastructure, and that the quality of government affects the decisions and the returns of different types of investments. According to such studies there are evident divergences in public governance and in Cohesion funds management in the Italian regions, leading to different returns [11,49,55].…”

Institutions and the Thirst for ‘Prestige’ Transport Infrastructure

“…Yet few researchers have empirically explored how local institutional conditions shape the economic impact of transport infrastructure. Except for Crescenzi, Di Cataldo, and Rodríguez-Pose (2016), we know of no analyses of the triple link between government institutions, infrastructure investments, and economic growth for European regions.…”

“…As highlighted by Crescenzi et al (2016), institutional conditions and the quality of government in the regions of the EU have in recent years heavily influenced decisions on which type of transport infrastructure to build. Choices of transport infrastructure, in turn, have affected the returns on new investment in infrastructure.…”