Infrastructures and Productivity: A Country-Sector Panel Analysis

This paper investigates the impact of physical infrastructures on sectoral total factor productivity (TFP). In the first part, a neoclassical growth model with multiple productive sectors and public capital (in the form of infrastructures) uncovers a long-run relationship between infrastructures and sectoral TFP. In the second part, a panel-cointegration analysis evaluates the long-run impact of 4 distinct types of infrastructures-transport, energy, ICT, health-on the TFPs of 22 manufacturing sectors in a sample of 65 (developed and emerging) countries between 1995 and 2018. We find that infrastructures are a positive and significant determinant of sectoral TFPs. A panel error-correction model also confirms that causality runs from infrastructures to TFPs. These results are robust to further empirical analysis conducted on sub-samples segmented by several dimensions. Our findings can inform policy in designing targeted interventions and prioritizing investment.