Socio-economic impact of infrastructure investments

Abstract

This paper reviews the existing scientific literature analysing theoretical and practical results of infrastructure impact on social and economic development. There is no unique concept in scientific literature for determining the notion of infrastructure, for distinguishing and measuring its components and various models which provide different results are used for measuring the impact of infrastructure. Lack of unique methodology in academic literature hinders evaluation of the infrastructure investments impact on social and economic development. The authors emphasize different insights on this relationship which provides wide methodological background but there is lack of conceptual methods which could be adjusted for certain countries and life-spans. Characteristic of each country determines the set of infrastructure components and the aspect of impact on social and economic development: economic growth, income inequality, output, regional competitiveness, labour productivity and welfare. The analysis of infrastructure development impact is based on three main factors: definition of infrastructure, determination and measurement of its components, formation of a model for evaluation of the impact. They are crucial for accurate testing of the impact of infrastructure investments. The authors of the paper present scientific approaches on these factors and provide hypothetical test of the impact of infrastructure on the development in the Baltic States: Lithuania, Latvia and Estonia. The issue of infrastructure investments is very important as infrastructure development in these countries is supported by Structural Funds of European Union and other financial mechanisms. The authors of the paper faced the problem of data availability and the results of causal relationship estimations between growth and infrastructure variables in different countries are presented for the period 1995-2007. Statistical measurement of relationship between infrastructure and economic growth determinants in the Baltic States proved that several variables are not enough to evaluate the impact of infrastructure on development. The full-scale method is a must in order to measure this relationship. Empirical test also proved that the direction of relationship differs in Lithuania and Latvia which are attributed to the same level development and these results contradict the findings in scientific literature. For this reason it is important to acknowledge that the model of infrastructure impact evaluation must involve determinants of regional peculiarity. The authors will continue analyzing these academic issues in their further researches.