Governance and Management Review, Vol 1, No 1 (2016)

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Impact of Physical Infrastructure on Economic Growth: Implications for Public Policy

Ayza Shoukat, Khalil Ahmad


This paper intends to explore the impact of public physical infrastructure on economic growth of Pakistan in the long-run with its implications for public policy. This has been done by taking into account three public physical infrastructure indicators like telecommunication, transportation and energy. These indicators are combined through Principle Component Method (PCM). These indicators are selected not only because of their importance for economy but also because they require huge and irreversible investment which is not usually initiated by the private sector. An empirical analysis is conducted on time series annual data from 1972 to 2014 for the economy of Pakistan. By employing PCM, we have constructed infrastructure index for growth analysis. The long-run relationship is constituted by employing Johansen’s co-integration technique. The impact of infrastructure index on GDP growth is positive and statistically significant. The results suggest that public physical infrastructure provision certainly improves the economic conditions by contributing towards growth in the long-run. This paper also identifies some guide lines for public policy to ensure efficient public sector investment for the sufficient provision of physical infrastructure. Transparency and financial autonomy should be insured for the selection of public investment in infrastructure projects. This paper also proposes the public policy reforms for infrastructure expenditures to promote inclusive growth.

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