DP8882 | Infrastructure and regional growth in the European Union

Publication Date

01/03/2012

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Abstract

Transport infrastructure has represented one of the cornerstones of development and cohesion strategies in the European Union (EU) and elsewhere in the world. However, despite the considerable funds devoted to it, its impact remains controversial. This paper revisits the question of to what extent transport infrastructure endowment -- proxied by regional motorways -- has contributed to regional growth in the EU between 1990 and 2004. It analyses infrastructure in relationship to other factors which may condition economic growth, such as innovation, migration, and the local ?social filter?, taking also into account the geographical component of intervention in transport infrastructure and innovation. The results of the two-way fixed-effect (static) and GMM-diff (dynamic) panel data regressions indicate that infrastructure endowment is a relatively poor predictor of economic growth and that regional growth in the EU results from a combination of an adequate ?social filter?, good innovation capacity, both in the region and in neighbouring areas, and a region's capacity to attract migrants. The meagre returns of infrastructure endowment on economic growth raises interesting questions about the opportunity costs of further infrastructure investments across most of Western Europe.