Infrastructure and Long-run Economic Growth: Evidence from Chinese Provinces

This paper attempts to shed empirical light on one of the oldest debates in the literature on infrastructure—whether infrastructure capital contributes to aggregate output in the long run, and related to that, whether investing in infrastructure is an effective tool to promote regional development. Drawing from a panel data set of 29 Chinese provinces over the period 1985–2012, it constructs a synthetic infrastructure index and employs panel time series techniques. The findings suggest that infrastructure is, on average, a strong determinant of economic growth and that there are provincial differences in the marginal productivity of infrastructure due probably to differences in the relative shortage or overprovision of infrastructure stocks. Therefore, policy makers should use infrastructure investment as a means of boosting output or promoting regional development only to the extent that it does not lead to oversupply of infrastructure.