Does Infrastructure Have A Transitory or Longer-term Impact? Evidence from China

It is ambiguous in the literature whether infrastructure only has transitory effects by lifting the level of aggregate output, or a longer-term impact by boosting the growth rate of output. The paper attempts to shed empirical light on this issue by looking at the case of China. It employs an infrastructure-augmented production function framework and a growth regression model, and adopts panel threshold regressions to address non-linearity. The results show that infrastructure stocks (except railways) are more productive than other physical capital in raising output levels, but not so when it comes to the effect on long-term growth rates. The analysis also finds that infrastructure's productivity depends on whether it is oversupplied or in shortage relative to non-infrastructure capital.