Abstract
This 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.
Highlights
Structuralists consider that availability of infrastructure plays important role in markets connectivity and trade promotion while the lack of infrastructure disrupts markets and retards trade
Researchers estimated that poor infrastructure penalize international trade (Donaubauer et al 2018; Yeaple and Golub 2002)
Despite the fact that infrastructure affects the cost of production and level of trade (Clark et al 2004), many international trade theories overlooked the role of infrastructure
Summary
Structuralists consider that availability of infrastructure plays important role in markets connectivity and trade promotion while the lack of infrastructure disrupts markets and retards trade. This means infrastructure is crucial for trade promotion and global economic integration (Brooks and Menon 2008). Despite the fact that infrastructure affects the cost of production and level of trade (Clark et al 2004), many international trade theories overlooked the role of infrastructure. Traditional international trade theories assumed zero transportation and energy cost which hardly justify the ground realities at a time when infrastructure services play a dominant role in the regional as well as international trade (Djankov et al 2010). Lack of infrastructure increases the cost of production, reduces profitability and causes unnecessary delay in economic activities (Duval and Utoktham 2009; Martinez-Zarzose 2007)
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