- Journal of Infrastructure
Development
Theoretical literature reveals that infrastructure
development/investment is a key pre-condition to foreign direct investment
(FDI), trade openness and economic growth in any economy. But the relationship
between infrastructure development and economic growth has been controversial
and several empirical studies examining this issue have found high returns to
infrastructure development/investment (Alwafi 2017; Aschauer 1989; Asiedu 2002;
Chi and Baek 2016; Mishra, Kunapareddy and Kar 2013; Mohanty and Bhanumurthy,
2018; Sahoo and Dash 2009; Sanchez-Robles, 1998); while, another group of
studies provide the evidence that infrastructure development/capital has an
insignificant (little impact) or no effect (or mixed effects) on economic
growth and productivity (Berechman, Ozmen and Ozbay 2006; Chandra and Thompson
2000; Ewing 2008; Garcia-Mila, McGuire and Porter 1996; Holtz-Eakin and
Schwartz 1995; Tatom, 1993). Furthermore, besides mixed effects of
infrastructure on economic growth, the direction of the causal relationship
between infrastructure and economic growth, remains vague (Olarreaga 2016).
Studies that have investigated the
effect of infrastructure and foreign direct investment (FDI) on economic growth
and interaction among them found that improvement in electricity and transport
infrastructure induces growth and interactive effect of FDI and infrastructure
improves economic growth (Nketiah-Amponsah and Sarpong 2019). Pradhan et al.
(2013) showed the existence of bi-directional causality between FDI and
economic growth and a unidirectional causality from transport infrastructure to
both FDI and economic growth in India. Thompson (2011) indicated that trade
openness and infrastructural development encouraged the inflow of FDI in
Sub-Saharan African countries (SSA) and that FDI and infrastructural
development contributed towards enhancing economic growth.
Hence, this study seeks to
re-examine the relationships among these key macroeconomic aggregates and
economic growth and their effectiveness on long-run growth performance of a
fast-developing country—India in a time-series context. Although there have
been a few studies that examined different aspects of the role of
infrastructure in economic growth in the Indian context (Ghosh and De 2005;
Mishra, Kunapareddy and Kar 2013; Pradhan et al. 2013; Sahoo and Dash 2009),
these studies and foregoing literature have typically ignored the roles of
trade and FDI inflows in the relationship between infrastructure development
and economic growth, and this study fill up this research gap by incorporating
these important variables in an augmented aggregate production function (APF)
framework.
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