The University of Manchester Discussion Paper Series Public Investment in Transportation and Communication and Growth: A Dynamic Panel

This paper investigates the relationship between public investment in transportation and communication and economic growth using traditional instrumental estimation and a mixed fixed and random coefficient approach in the context of a dynamic panel framework. We find that there is a dynamic effect of public investment in transportation and communication on economic growth and its impact is positive. In comparison with earlier studies, our estimated coefficients are somewhat lower. However, for the reverse causal relationship proposed by the investment acceleration hypothesis, we find that there is significant heterogeneity across countries and our empirical study does not support the presence of reverse causality.