Transportation Infrastructure Investments and FDI Inflows: Evidence From a 15-Year Panel Data Analysis

Abstract

This study explores the relationship between transportation infrastructure investments and foreign direct investment (FDI) inflows across 39 OECD countries over 15 years. While previous literature has primarily focused on transportation infrastructure quality, our research shifts the focus to transportation infrastructure investments and their temporal dynamics, grounded in signaling theory. We argue that both the scale and year-over-year (YoY) growth of investments in road and rail infrastructure act as credible signals to foreign investors, reflecting a country's commitment to long-term economic development. Utilizing mixed-effects modeling on panel data, we find that a 1% increase in road infrastructure investment results in a 0.31% increase in FDI inflows, while a similar rise in rail investment corresponds to a 0.29% increase. Notably, a 1% YoY growth in road investment generates a 5.27% rise in FDI, whereas rail investment shows no significant YoY effect unless moderated by country size—larger nations benefit more from incremental rail investment. These findings highlight the importance of sustained and mode-specific infrastructure investment strategies. Our research provides both theoretical contributions by applying signaling theory in a macroeconomic context and practical implications for policymakers aiming to attract FDI. By distinguishing between the effects of road and rail investments and incorporating dynamic investment trends, this study offers new insights into the role of infrastructure investment as a strategic economic signal.