HOW DOES INFRASTRUCTURE AFFECT ECONOMIC GROWTH? INSIGHTS FROM A SEMIPARAMETRIC SMOOTH COEFFICIENT APPROACH AND THE CASE OF TELECOMMUNICATIONS IN CHINA

Yin‐fang Zhang and Kai Sun

Economic Inquiry, 2019, vol. 57, issue 3, 1239-1255

Abstract: This paper attempts to shed new empirical light on infrastructure's role in economic growth using a semiparametric smooth coefficient model to avoid specification problems in some existing studies and admit infrastructure‐induced nonlinearity and parameter heterogeneity. Estimated by a three‐step procedure that controls for endogeneity in both the regressors and the environmental variable (infrastructure), the model is applied to the empirical context of telecommunications infrastructure in a fast‐growing economy, China. The results reveal that telecommunications contribute to output through various sources, namely its neutral and non‐neutral impacts. The total/net effect is positive but largely decreases with telecommunications stocks. (JEL L96, O4, O1)

Date: 2019
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