Public infrastructure investment, economic growth and policy choice: evidence from China

Abstract

The relationship between public infrastructure investment and economic growth has always been an eye-catching issue for China since Chinese governments have devoted most of public funds to financing infrastructure after the economic reform. Taking the Chinese infrastructure investment policy as the background, this paper aims to examine the effect of infrastructure investment on economic growth. The paper establishes a gross productive equation about the contribution of productive elements on economic growth based on C-D production function and estimates the output elasticity of every productive element. Both theoretic and practical analysis indicates that infrastructure capital stock exerts a positive impact on economic growth and it will increase long-term economic growth rate, which could verify the appropriateness of the current „infrastructure-stressed‟ investment policies of the Chinese government.