Infrastructure Development and Economic Growth in China.pdf

INSTITUTE OF DEVELOPING ECONOMIES IDE Discussion Papers are preliminary materials circulated to stimulate discussions and critical comments IDE DISCUSSION PAPER No. 261 Infrastructure Development and Economic Growth in China Pravakar Sahoo* Ranjan Kumar Dash** Geethanjali Nataraj*** October 2010 Abstract China is the fastest growing country in the world for last few decades and one of the defining features of Chinas growth has been investment-led growth. Chinas sustained high economic growth and increased competitiveness in manufacturing has been underpinned by a massive development of physical infrastructure. In this context, we investigate the role of infrastructure in promoting economic growth in China for the period 1975 to 2007. Overall, the results reveal that infrastructure stock, labour force, public and private investments have played an important role in economic growth in China. More importantly, we find that Infrastructure development in China has significant positive contribution to growth than both private and public investment. Further, there is unidirectional causality from infrastructure development to output growth justifying Chinas high spending on infrastructure development since the early nineties. The experience from China suggests that it is necessary to design an economic policy that improves the physical infrastructure as well as human capital formation for sustainable economic growth in developing countries. Key words: C