Unraveling the Nexus between Road Transport Infrastructures and Economic Growth: Empirical Insights from Nepal’s Case

Abstract

Sustained efforts and investments in different sectors are essential for the overall development of a region. Various studies around the globe underscore the importance of investment in road transport infrastructure in many developing countries to achieve their development targets. The relationship between infrastructure investment and economic growth is often found to be inconsistent. This ambiguity leads to a lack of consensus on an appropriate scale of investment required among the policy makers. So, it is often necessary to depend on empirical evidence by developing causality direction, which significantly contributes to policy implications in developing countries. The objective of this analytical study is developing a relationship between the road transport infrastructure and economic growth of Nepal. For this, relevant data from 1998 to 2022 were used to perform a unit root test and determine the order of integration, followed by cointegration analysis to determine the long-run relationship between the variables. In addition, the vector error correction model (VECM) was employed to find the direction of causality. The findings indicate unidirectional long-run causality from gross capital formation, exports of goods and services, expenditure on road transport infrastructures, and road length to the GDP of Nepal. Furthermore, the expenditure on road transport infrastructures is observed to have a short-run impact on economic growth. This study recommends that a suitable transportation policy should be implemented to boost investment on road transport infrastructures to achieve sustainable economic growth in Nepal-like developing nations.