The Effects of Infrastructure Development on Growth and Income Distribution

Abstract

This paper provides 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), we use a variety of 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: (i) growth is positively affected by the stock of infrastructure assets, and (ii) income inequality declines with higher infrastructure quantity and quality. A variety of specification tests suggest 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.

Welfare spending and quality of growth in developing countries: A note on evidence from Hopefuls, Contenders and Best Performers

“…This is fundamentally because high inflation creates uncertainty due to growing ambiguity and investors have been documented to prefer less ambiguous economic strategies (Le Roux & Kelsey, 2016ab). On the positive indicators, they have been substantially documented in the bulk of inclusive growth literature (Dollar & Kraay, 2003;Barro & Lee, 2000;Calderon & Servén, 2004;Levine, 2005;Hausmann et al, 2007;IMF, 2007;Mishra, et al, 2011;Anand et al, 2012;Seneviratne & Sun, 2013;Asongu & Nwachukwu, 2016ab).…”

“…While structural change entails globalisation (FDI and trade), human capital and macroeconomic stability embody, inter alia: educational levels, technological change and fixed investment. Other structural and macroeconomic features essential for the growth process are inflation and 8 output volatility (Dollar & Kraay, 2003;Barro & Lee, 2010), finance (Levine, 2005); infrastructural development (Calderon & Servén, 2004;Seneviratne & Sun, 2013); development of value chains (Hausmann et al, 2007;Anand, et al, 2012) and production modernization (Mishra et al, 2011). The summary statistics are presented in Appendix 2 whereas the correlation matrix is in Appendix 3.…”

Trade, Infrastructure and Income Inequality in Selected Asian Countries: An Empirical Analysis

“…In fact, Calderón and Servén (2005) presented an empirical analysis focusing on Latin America. They reported positive and significant output contributions of three types of infrastructure assets, i.e., telecommunications, transport and power.…”

“…With regard to infrastructure and income inequality, they concluded that availability and quality of infrastructure services for the poor in developing countries had a significant positive impact on their health and/or education and, hence, on income and welfare. Calderón and Servén (2005) also dealt with the issue of private participation in infrastructure investment by examining how large an increase, if any, there was in its pro-poor effect. They considered the important aspect of distributive impact of private participation in infrastructure, which had attracted considerable attention and which involved both macro and microeconomic linkages.…”

Productive government spending and its consequences for the growth–inequality tradeoff

“…For example, Calderón and Chong (2004), Calderón and Servén (2004), Fan and Zhang (2004), Ferranti et al (2004), and Lopez (2004) find that public investment has both promoted growth and helped mitigate inequality. 2 On the other hand, Brakman et al (2002) find that government spending on infrastructure has increased regional disparities within Europe, while Artadi and Sala-i-Martin (2003) suggest excessive public investment has contributed to rising income inequality in Africa.…”