Public Infrastructure Investment and Development: Evidence from Turkey

Abstract:This paper investigates the relationship between public infrastructure investment and development. The study follows the human development approach and measures the aspects of development by economic growth rate, gross enrolment rate and infant mortality rate. Public infrastructure investment is disaggregated to energy infrastructure, city infrastructure and security, and transportation and communication. For the purpose of research, a panel dataset for the provinces of Turkey for the years between 1975 and 2001 is used. As the econometric technique, the fixed-effects technique is preferred. Standard errors robust to heteroscedasticity, serial correlation and cross-sectional dependence are reported. To capture the long-run impact of investment in public infrastructure and address the issue of endogeneity of public policy in econometric analysis, dependent variables are calculated as the five-year forward-moving average of the growth rate of real gross domestic product (GDP) per capita, the five-year forwardmoving average of the gross enrolment rate and the five-year forward-moving average of the infant mortality rate. The results provide evidence for a positive relationship between public infrastructure investment and development indicators. Findings support those who promote public provision of infrastructure for pro-poor growth, sustainable development or inclusive development. However, multi-collinearity and cross-sectional dependence arise as factors that reduce the robustness of inferential statistics. Additionally, the robustness of the results relies on the assumptions that simultaneity and dynamic endogeneity are not present, and that the impact of public infrastructure investment does not extend beyond the province that receives it.