The nexus between infrastructure quantity, quality and economic growth in Sub Saharan Africa

Abstract

Public infrastructure is believed to be important to economic growth through its role as a complementary production factor or an additional input of production. Investigation of the growth effects of infrastructure has been one of the favourable areas in academic and policy circles. Despite increased attention received in the literature on the infrastructure-growth relationship, there still exist important research gaps in the areas such as aggregate infrastructure-growth nexus, direction of infrastructure-growth causality, electricity growth effects in presence of energy-related CO2 emissions, and spatial spillovers of infrastructure investment. In these various areas, the most serious gap is failure to account for infrastructure quality. The knowledge of the quantitative and qualitative growth impacts at both aggregated and individual infrastructure sector levels, including the infrastructure spatial spillovers in Sub Saharan Africa (SSA) is extremely important in the design of optimal infrastructure investments and implementation of cost-sharing structures in the presence of vital spillovers. This thesis examines four critical themes in the infrastructure quantity and quality literature. The first essay examines the growth effects of aggregate infrastructure stock and quality, and the direction of infrastructure-growth causality. Exploiting advances in applied econometrics, the results reveal strong evidence of a positive effect of infrastructure on economic growth with most contribution coming from infrastructure quality. More so, the findings show evidence of a unidirectional causality from aggregate infrastructure to growth, which is based on hybrid indices that simultaneously capture the quantity and quality features. While SSA should continue solving the infrastructure shortage problem, the results in this essay also give much credence to infrastructure quality enhancement. This study argues that causality testing based on quantitative measures alone is not adequate as quality developments are omitted, thus the use of hybrid indices tend to be superior. The second essay presents new evidence on the economic growth effects of the stocks and qualities of electricity, telecommunication, transportation, water and sanitation infrastructures in both long-run and short-run using a five step panel analysis. The results reveal long-run positive growth effects from the stocks of electricity and telecommunication. While water stock shows no significant long-run impact, transport stock has a negative impact. Moreover, the qualities of telecommunication, transport and sanitation exhibit positive long-run growth effects. For short-term dynamics, the findings suggest positive growth effects from the stocks of electricity and telecommunication, whereas transport and water stocks suggest negative growth effects. While telecommunication and sanitation quality developments can raise short-run growth, transport and water qualities have no significant contribution. Electricity quality exerts a downward pressure on growth in SSA. Based on the hybrid indices, the long-run and short-run growth effects across the infrastructure sectors are basically positive except for electricity in the long-run. Moreover, the negative growth effects from transport stock may imply shifting of vital resources away from other investments during construction while their under (or unproductive) utilisation yields economic benefits below construction costs. The third essay critically analyses the extent of electricity shortage, efficiency, key sources and opportunities for SSA in comparison with other regions. The essay proceeds to address the issue of how electricity-related CO2 emissions may alter the growth contributions of both electricity stock and quality. First, as in essay two but here with a different approach and different proxy for electricity stock, the results suggest positive effects from electricity stock but the quality effects are negative. Second and most importantly, a high level of electricity-related CO2 emissions lower the growth contributions of electricity stock and exacerbate the negative growth impact of electricity quality. The key conclusion established is that electricity-related CO2 emissions adversely affect the economic contribution of electricity sector. This may give an insight on proper design of carbon taxes (where applicable) yet comparing the opportunity cost of carbon taxes versus investment in carbon capture technologies. Finally, the last essay analyses the spatial spillovers from aggregate infrastructure stock and quality among SSA countries. The results indicate evidence of positive and robust spillover effects from foreign aggregate infrastructure quality while the foreign aggregate stocks of infrastructure imply negative spillovers. Thus, whereas infrastructure quality enhancement invigorates the surrounding regions, infrastructure stock development may provide a competitive advantage that draws economic factors from the surrounding regions and hence exerting negative pressure on their respective economic activity. To buttress these findings, panel Granger causality tests show evidence of causality (mostly bi-directional) between the infrastructure (domestic and foreign) variables and economic growth. This essay is crucial for two key policy concerns, which are the implementation of optimal infrastructure investments and credibility of cost-sharing structures in the presence of spillovers.