Infrastructure and growth in South Africa: direct and indirect productivity impacts of 19 infrastructure measures (original) (raw)

Empirical explorations of the growth and productivity impacts of infrastructure have been characterized by ambiguous (countervailing signs) results with little robustness. A number of explanations of the contradictory findings have been proposed. These range from the crowd-out of private by public sector investment, non-linearities generating the possibility of infrastructure overprovision, simultaneity between infrastructure provision and growth, and the possibility of multiple (hence indirect) channels of influence between infrastructure and productivity improvements. This paper explores these possibilities utilizing panel data for South Africa over the 1970-2000 period, and a range of 19 infrastructure measures. Utilizing a number of alternative measures of productivity, the prevalence of ambiguous (countervailing signs) results, with little systematic pattern is also shown to hold for our data set in estimations that include the infrastructure measures in simple growth frameworks. We demonstrate that controlling for potential endogeneity of infrastructure in estimation robustly eliminates virtually all evidence of ambiguous impacts of infrastructure, due for example to possible overinvestment in infrastructure. Indeed, controlling for the possibility of endogeneity in the infrastructure measures renders the impact of infrastructure capital not only positive, but of economically meaningful magnitudes. These findings are invariant between the direct impact of infrastructure on labor productivity, and the indirect impact of infrastructure on total factor productivity. extension of this empirical literature is an examination of the extent of underinvestment in infrastructure, and its consequences for economic growth. For instance, on the basis of comparative experience from the 1990s, Easterly and Serven estimate that about one-fifth of Latin American growth underperformance relative to East Asia was directly related to underinvestment in infrastructure, while Esfahani and Ramirez (2003) estimate that sub-Saharan Africa's poor growth performance was in part related to underinvestments in electricity and telecom infrastructure, and Eustache (2005) estimates that if Africa had enjoyed Korea's quantity and quality of infrastructure, it would have raised its annual growth per capita by about 1 percentage point. Bajo-Rubio and Diaz-Roldan (2005) examine underprovision of public capital for Spanish regions, while Miller and Tsoukis infer sub-optimal provision of public capital for a larger set of countries. Given anticipated infrastructure impacts on human welfare and equity across community and income groups, further questions surround relative access to infrastructure services across urban and rural households, and different income groups. Often the lowest household income groups have no