Infrastructure development and economic growth in India

Abstract

In this study, we investigate the role of infrastructure in economic growth in India for the period 1970–2006 on the basis of the empirical framework developed by D.A. Aschauer (Is public expenditure productive? Journal of monetary economics, 23 (2), 1989, 177–200). In this context, we develop an index of infrastructure stocks and estimate growth-accounting equations to investigate the impact of infrastructure development on output. Overall, the results reveal that infrastructure stocks, labour force and total investment play an important role in economic growth in India. More importantly, we find that infrastructure development in India has a significant positive contribution toward growth than both private and public investments. Further, causality analysis shows that there is unidirectional causality from infrastructure development to output growth. From a policy perspective, there should be greater emphasis on infrastructure development to sustain the high economic growth which the Indian economy has been experiencing for the last few years.