Does infrastructure increase exports and reduce trade deficit? Evidence from selected South Asian countries using a new Global Infrastructure Index

Abstract

AbstractThis study investigates the short- and long-run impact of infrastructure on export and trade deficit in selected South Asian countries during 1990–2017 by using Pooled Mean Group (PMG) estimator and cointegration techniques like Pedroni and Kao test. The empirical results of PMG approach confirmed the existence of significant long-run impact of aggregate and sub-indices of infrastructure (i.e., transport, telecommunication, energy and financial sector) on export and trade deficit. The findings suggested that infrastructure positively promotes exports while negatively affecting trade deficit. The relationship between infrastructure and export is worthy bulletin for South Asian economies to encourage the quantity of exports and catch-up on established economies. The control variables of exchange rate, human capital, per capita GDP and institutional quality enhance exports and retard trade deficit significantly in the long run. Furthermore, the Pedroni and Kao test indicates strong evidence of cointegration in selected variables. Fully modified ordinary least square (FMOLS) and dynamic ordinary least square (DOLS) support robust and consistent results to the main model of this study. Furthermore, the study recommended that in long run aggregate and sub-indices of infrastructure promote exports and decrease trade deficit in selected South Asian economies.