InfrastructureandGrowthinSouthAfricaDirectandIndirect.pdf

Infrastructure and Growth in South Africa: Direct and Indirect Productivity Impacts of 19 Infrastructure Measures∗ † ˇ ‡ J.W.Fedderke and Z.Bogetic ´ Abstract Empirical explorations of the growth and aggregate productivity impacts of infrastructure have been characterized by ambiguous (countervailing signs) results with little robustness. A number of expla- nations 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 indi- rect) channels of influence between infrastructure and productivity improvements. This paper, utilizing panel data for South African manufacturing over the 1970-2000 period, and a range of 19 infrastructure measures, isolates the impact of endogneity. The paper develops an instrumentation strategy general- izeable to other contexts. Utilizing both direct and indirect measures of productivity, we demonstrate that controlling for potential endogeneity of infrastructure in estimation robustly eliminates virtually all evidence of ambiguous impacts of infrastructure. Indeed, controlling for the possibility of endogeneity in the infrastructure measures renders the impact of infrastructure capital not only positive, but of econom- ically meaningful magnitudes. These findings are invariant between the direct impact of infra