Infrastructure Development and Economic Growth in East Africa: Quantity versus Quality Dimensions Using Panel-ARDL Approach

Abstract

Infrastructure development is one of the key drivers for economic growth. As a result, dealing with the quantity and quality dimensions of infrastructure development has attracted the interest of researchers in recent times. The main objective of this study is to investigate the relationship between infrastructure development and economic growth in both quantity and quality dimensions. The study employs Panel Autoregressive Distributed Lag (PARDL) method. The results of the study reveal that infrastructure development quantity has a positive and significant effect on economic growth. The results show that in the long run, a one unit rise in the African Infrastructure Development Index (AIDI) leads to an increase in economic growth of 0.31%, on average; while in the short run, a one unit rise in the African Infrastructure Quality Index (AIQI) boosts the economic growth by 1.4%, but in the long run it decreases the GDP per capita by 1.99 percentage points. The interaction result shows that the relationship between infrastructure development and economic growth depends on the level of capital formation in East African countries. The elasticity result shows that gross capital formation has a larger marginal effect on economic growth in countries with a high AIDI and vice versa. Finally, the study recommends that East African countries should adopt strategies and policies that will increase the quantity and quality of infrastructure development, as well as a capital formation strategy accompanied by human capital development and high institutional quality.