Nexus between Infrastructure and Economic Growth: An Empirical Study in the Post-Reform period in India

Prabir Kumar Ghosh

MPRA Paper from University Library of Munich, Germany

Abstract: The purpose of this study is to examine the nexus between infrastructure and economic growth in India over the period 1991 – 2016. More specifically, this study tries to find out whether infrastructure development in the post-reform period is cointegrated with economic growth. For the said purpose, a composite infrastructure index is constructed using Principal Component Analysis (PCA) based on eight infrastructural indicator variables in the areas of physical, and social. and financial infrastructure. The methodological approaches used to analyze the nexus between infrastructure index and economic growth mainly consist of time series estimation techniques. The cointegrating nature between the infrastructure index and economic growth is checked using the Engle and Granger method of cointegration. The study further applies VAR based Granger causality test to assess the direction of causality between infrastructure and economic growth. The results reveal that infrastructure and economic growth are cointegrated and hold a long-run equilibrium relationship. However, in the short run, the results of the study find no instantaneous effect of change in infrastructure on economic growth. Finally, the results of the Granger causality test confirm the unidirectional causality from infrastructure to economic growth. Therefore, the study concludes that infrastructural development can be an effective tool for achieving sustainable economic growth.

Keywords: Infrastructure; economic growth; PCA; Engle and Granger cointegration; VAR; Granger causality; sustainable economic growth. (search for similar items in EconPapers)
JEL-codes: C22 O18 (search for similar items in EconPapers)
Date: 2020-11, Revised 2021-05
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Published in Vidyasagar University Journal of Economics ISSN - 0975-8003.XXV(2021): pp. 205-220

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