The role of infrastructure efficiency in economic development—The case of underused highways in Europe

Abstract

In this paper, we establish a two-way causality between the phenomenon of infrastructure which is underused (the so-called “white elephant case”) and the aggregate productivity level (TFP) of the economy. On the one hand, the fact that a transport infrastructure is not used as much as it could be is itself a cause of low TFP because it represents low productivity for an important item of social capital. On the other hand, low aggregate productivity makes firms’ strategies founded on large scale of production and exports riskier, given the possibility that the political decision to build the required transport infrastructure may never be taken.