Poverty Reduction Effect of Infrastructure: A Cross Country Study of Developing Countries in Asia

Abstract

Poverty alleviation is the central theme of the decade and this paper investigates the poverty reduction effect of access to infrastructure using panel data from 1990-2015 for nine developing countries in Asia. The objective of the paper is to investigate the causality between poverty and access to infrastructure and to estimate the poverty reduction effect of infrastructure. Dependent variables are the poverty headcount ratio at USD 1.90 and USD 3.20 per day. A variable is created by using access to electricity, water and sanitation occupying principal component analysis (PCA). Causality test result indicates unidirectional causality running from access to infrastructure to poverty. The model estimated by using fixed effects and results find lack of access to electricity, water and sanitation are the major reasons to poverty. The poverty reduction effect of access to infrastructure is larger in the long-run. The results of the model speak to close infrastructure gap, make infrastructure accessible, make poor beneficiaries of education, to control persisting income inequality, controlling population growth, reduce unemployment and encourage remittance. Findings of the model guide policy makers to prioritize investment in infrastructure as infrastructure boosts human capital through better provisioning of electricity, sanitation and water and physical capital.