Transport Infrastructure and Economic Growth: From Diminishing Returns to International Trade

Abstract

The economic effects of transport infrastructure have been at the forefront of economic research and development policies for the last three decades, after the estimates in the early studies uncovered transport investment as one of the main drivers of economic growth. This is still widely accepted, and the aim of this paper is to challenge this view by analyzing 657 estimates from 48 production function studies. Our results confirm a positive yet small average output elasticity of transport network, but further add to the literature by showing that the marginal returns of transport infrastructure have been falling since 1950s, especially in the USA and China, while the output elasticities in Europe have been stable but low throughout the entire period. Furthermore, the paper reviews studies on the effeets of new roads on firm-level performance, and concludes, based on the evidence of small marginal returns of transport infrastructure on both macro- and micro-economic level, that a a much more targeted approach to public investment in transport infrastructure is needed, at least in the developed countries.