Infrastructure and Growth

Abstract

Infrastructure plays a critical role in explaining the growth differentials between regions. The growth performances of Latin America are lagged behind East Asia and this fact is often attributed to the infrastructure gap between these regions. It is advised to Latin America to increase its infrastructure investments in order to record high growth rates. But as infrastructure is multidimensional, in which sector the investments should be channeled? This study tries to determine this with an empirical model. The empirical model in this study is a growth function and the infrastructure variables are added as an input to this function. Empirical results suggest that the long-run elasticity of transportation is higher than the long run elasticities of telecommunications and power. Thus, in order to catch-up East Asia quickly, Latin America should invest in transportation.