The role of transport infrastructure in economic growth: Empirical evidence in the UK

Abstract

Since 2015, the United Kingdom (UK) has increased its investment in transportation infrastructure to compensate for years of underinvestment in comparison with peer countries. It is of critical importance to evaluate the effect of these recent investments, as well as historical ones, on economic development, both theoretically and empirically, to provide guidance on future infrastructure investment. However, few research looks into such policy adjustment on economic growth in the UK. To fill this gap, this paper investigates the relationship between transport infrastructure development and economic growth in the UK from different time spans. Principal component analysis (PCA) is used to construct a comprehensive measure of transport infrastructure development. This paper then applies Vector Error Correction Model (VECM) to investigate both long-run and short-run relationships between transport infrastructure development and economic growth from 1970 to 2017 in the UK. Empirical results suggest that transportation infrastructure has a long-run promotive effect on economic development. However, in the short run, this effect turns out to be significantly negative. The analysis of this paper indicates differentiated roles that the UK's transport infrastructure played in economic growth, which should be considered in future policy design of achieving economic sustainability in the UK.