Is Infrastructure Capital Productive? A Dynamic Heterogeneous Approach

This paper offers an empirical
evaluation of the output contribution of infrastructure.
Drawing from a large data set on infrastructure stocks
covering 88 countries and spanning the years 1960-2000, and
using a panel time-series approach, the paper estimates a
long-run aggregate production function relating GDP to human
capital, physical capital, and a synthetic measure of
infrastructure given by the first principal component of
infrastructure endowments in transport, power, and
telecommunications. Tests of the cointegration rank allowing
it to vary across countries reveal a common rank with a
single cointegrating vector, which is taken to represent the
long-run production function. Estimation of its parameters
is performed using the pooled mean group estimator, which
allows for unrestricted short-run parameter heterogeneity
across countries while imposing the (testable) restriction
of long-run parameter homogeneity. The long-run elasticity
of output with respect to the synthetic infrastructure index
ranges between 0.07 and 0.10. The estimates are highly
significant, both statistically and economically, and robust
to alternative dynamic specifications and infrastructure
measures. There is little evidence of long-run parameter
heterogeneity across countries, whether heterogeneity is
unconditional, or conditional on their level of development,
population size, or infrastructure endowments.