Globalisation, economic growth and quality of infrastructure: New insights

Abstract

AbstractThe China's Belt and Road Initiative and the EU's Global Gateway projects are based on the idea that high‐quality infrastructures are key for countries to benefit from globalisation. This article investigates the economic growth effect of globalisation using a panel of 117 countries over the period 1980–2019 and explores whether the state of infrastructure in countries matters. Based on the assumption that there are winners and losers of globalisation, we hypothesize that the effect of globalisation on economic growth differs across groups of countries with similar but unobserved characteristics. Therefore, the article incorporates the potential presence of hidden heterogeneity and tries to explain group membership of countries based on the quality of infrastructure. The finite mixture model regression shows that the effect of globalisation on growth differs across two different groups of countries. While the effect is insignificant in the first group, globalisation spurs economic growth in the second group. In addition, we find that countries with a better quality of infrastructure are more likely to be in the class where globalisation fosters economic growth. The results are robust to a battery of robustness checks. The article provides evidence that countries should improve the quality of infrastructure to fully reap the benefit of globalisation.