Consulting Assistance on Economic Reform II Discussion Papers

Abstract

We investigate the long run consequences of infrastructure provision on per capita income in a panel of countries over the period 1950-1992. Simple tests are devised for the existence and sign of the long run impact of infrastructure on income allowing for non-stationarity and cointegration in the time series, and heterogeneity in both the short run and long run responses across countries. We find a great deal of heterogeneity in the results across countries. Our results indicate that telephones and paved roads are provided at the growth maximizing level on average, but are under supplied in some countries and over supplied in others. In contrast, we find evidence that electricity generating capacity is under provided on average.