Infrastructure and Poverty Traps

This paper investigates whether infrastructure development helps poor economies escape low-income traps or transition to higher-income levels. Infrastructure has always been central to development policies and is critical for achieving the SDGs. While empirical studies have explored infrastructure's effects on growth, inequality, and poverty, this paper takes a different approach. We adopt a new country classification and infrastructure index to examine infrastructure's role in 91 countries from 1985 to 2014, using probabilistic choice models. Our results show that although infrastructure development does not have a statistically significant effect on the likelihood of countries falling into poverty traps, it plays a crucial role in differentiating high-income countries from poor and emerging economies. We also find that for infrastructure to be effective, other conditions, such as human capital and institutional quality, must be met. Therefore, infrastructure alone is insufficient to drive economic transformation. These findings have important policy implications for low-income countries, emphasizing that infrastructure must be integrated with other enabling factors to foster economic development. For high-income countries, infrastructure investment helps sustain progress and resilience.