Infrastructure and productivity in Latin America: is there a relationship in the long run?

Abstract

PurposeThe purpose of this paper is to analyse the relationship between infrastructure and total factor productivity (TFP) in the four major Latin American economies: Argentina, Brazil, Chile, and Mexico.Design/methodology/approachThe authors hypothesise that an increase in infrastructure has an indirect effect on output by raising productivity. To assess this theory, the traditional Johansen methodology was used for testing the cointegration between TFP and physical measures of infrastructure stock, such as energy, roads, and telephones. The Lütkepohl, Saikkonen and Trenkler Test, which considers a possible level shift in the series and has better small sample properties, was applied to the same data set and the two tests were compared.FindingsThe results do not support a robust long‐term relationship between the series; the authors do not find strong evidence that cuts in infrastructure investment in some Latin American countries were the main reason for the fall in TFP during the 1970s and 1980s.Originality/valueThe present paper addresses the empirical relationship between infrastructure and economic growth for Argentina, Brazil, Chile, and Mexico between 1950 and 2000, using new time series econometric methods finding new evidences on this relationship.