Abstract
Creation of road transport infrastructure, through its direct and indirect effects, has a bearing on sustainability of growth and overall development of a country. It provides knowledge spillovers resulting from the whole agglomerated area via network dynamic externalities. The models based on cost or production function that incorporate infrastructure but simply assume a positive effect are no longer satisfactory to take to the data, because they ignore any feedback effect. In this article, therefore, we have twin objectives: first, we examine whether road transport infrastructure has a long-run equilibrium relationship with the macroeconomic variables such as output, employment and gross private capital formation or not. Second, we use vector autoregression (VAR) approach to analyse the impact of road transport infrastructure on macroeconomic variables. The elasticities that are estimated in the VAR model differ from the production function elasticities, as they incorporate feedback effect between the variables in the model, as opposed to the ‘ceteris paribus’ elasticities which are estimated in production function studies.
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