Estimating impact of infrastructure development on economic growth in India

Abstract

This study aims to analyse the impact of infrastructure development (electricity, railway, roadways and telecommunications) on economic growth of India for the period 1971 to 2010. We empirically examine the impact of infrastructure at sectoral level as well as aggregate level on economic growth. We utilise Johansen cointegration test, fully modified ordinary least square (FMOLS) and Granger causality test based on vector error correction model (VECM) to examine the long run relationship, income elasticity coefficients and direction of causality respectively. Results of the cointegration test indicate for presence of a long run relationship between economic growth and infrastructure development. The effects of infrastructure indicators on income are estimated to be quite large and it varies from 5% to 21%. Overall, our findings indicate that infrastructure is a crucial determinant of economic growth in India.