Impact of Infrastructure on Economic Growth: A Comparative Analysis of Developed and Developing Countries

Abstract

The significance of infrastructure for economic growth and the welfare of a country has become a burning issue for the last three decades. This research examines the impact of infrastructure on economic growth across selected developed and developing countries. The dependent variable is economic growth, measured by the growth rate of gross domestic product, and the independent variables to measure infrastructure are transportation, communication, education, and electricity. The data set for analysis is collected from online sources of World Development Indicators for eighteen years (2000-2018). The panel data set of this study is evaluated by constructing fixed and random effects models. The findings reveal that infrastructure plays a significant role in the economic growth of developing countries, with less contribution in the case of developed countries. Because the infrastructure of developed countries is already well established, and if they invest more in infrastructure, the economic growth will rise slightly. So, they invest more in innovations and technology rather than in infrastructure. In developing countries, transportation, communication, and electricity have a positive impact, but education is insignificant in the growth rate. This study's findings align with the Solow Growth Theory, which states that public capital, in which infrastructure is included as necessary input in the production process, contributes to economic growth.