تاثیر زیرساخت های حمل و نقل بر رشد اقتصادی در هند: روش VECM

This paper examines the effect of transportation (road and rail) infrastructure on economic growth in India over the period 1970–2010. Using Vector Error Correction Model (VECM), the paper finds bidirectional causality between road transportation and economic growth. It also finds bidirectional causality between road transportation and capital formation, bidirectional causality between gross domestic capital formation and economic growth, unidirectional causality from rail transportation to economic growth and unidirectional causality from rail transportation to gross capital formation. The paper suggests that expansion of transport infrastructure (both road and rail) along with gross capital formation will lead to substantial growth of the Indian economy. Therefore, within its stated scope, this study suggests that a suitable transport policy should be retained to boost transportation infrastructure and hence sustainable economic growth in India.

The transportation would be a key facilitator to sustainable economic growth is rarely questioned. In India in particular, transportation has been noted to be a critical infrastructure required for economic growth (Raghuram & Babu, 2001). Indeed, the benefits and importance of transportation infrastructure to economic growth have been recognized for a long time (see Phang, 2003). A well-oiled transportation infrastructure expands the productive capacity of a nation, both by increasing the mobilization of available resources, and by enhancing the productivity of those resources. The support for this assertion is straightforward and there are many ways we can justify it. First, transportation infrastructure can enter in the production process as direct input and in many cases as an unpaid factor of production. Second, transportation infrastructure may make other existing inputs more productive. For instance, a well-designed road allows goods to be transported to market in less time and hence, reducing the transportation cost in the production process. Third, transport infrastructure can act as magnet of regional economic growth by attracting resources from other regions, which is called agglomeration. In this vein one would recall that throughout the growth of civilization, most centers of economic activities flourished along riverbanks and coast lines where water was the convenient prime carrier of raw materials, goods and labor. Transport infrastructure can also affect economic growth by changing aggregate demand. For instance, transportation infrastructure construction can create and increase demand for intermediate inputs from other sectors and stimulate multiplier effects in the economy. Similarly, the targets of “universal education and health care for all” would be tough to reach without the provision of transport infrastructure. In short, transport remains a crucial infrastructure that boosts economic development (Esfahani & Ramirez, 2003; Phang, 2003; Sanchez-Robles, 1998; Shah, 1992; Short & Kopp, 2005; Wang, 2002; WDR, 1994). But at the same time, we must acknowledge the need for in depth analysis to establish any “self-evident” causality implied here. Of necessity such analysis would be complex and must recognize the multidimensional nature of the links between transport, location, development and many other new factors relevant to our understanding of these processes as these too affect economic growth (see Fig. 1). The present approach to study a part of this will be empirical. The demand of the transport sector itself is likely to grow further with economic growth, population growth, industrialization, urbanization and so forth (Gramlich, 1994; Ramanathan & Parikh, 1999). Public transportation infrastructure, in fact, can influence economic output by crowding in or out private inputs such as labor and capital. An increase in public transport infrastructure would attract more private investments if there is a complementing relationship between them; or it could reduce private investments when public capital has a substitute effect on private inputs (Jiang, 2001). For illustration one notes that transport infrastructure accounts now for a major share of energy consumption in India, especially for petroleum products and the consequent development in that sector.Historically, two possible methods may help one examine the nexus between transport infrastructure and economic growth. These are, respectively, cost benefit analysis and macro-econometric modeling. In the former, the rates of return of infrastructure projects are examined by calculating all the benefits and costs of infrastructure projects. The latter—macro-economic models—however, provide three approaches. These include the production function approach (Aschauer, 1989; Eisner, 1991; Munnell, 1992), the cost function approach (Gillen, 1996; Khanam, 1999; Lynde & Richmond, 1992; Morrison & Schwartz, 1996; Nadiri & Mamuneas, 1996) and the causality approach (Herranz-Loncan, 2007; Ramanathan, 2001). However, the first two approaches do not give adequate attention to the direction of causality—the beacon for effective policy formulation, while the third approach provides high attention to the direction of causality. This paper utilizes the third approach. The focus of this endeavor would be to empirically investigate whether adding transport infrastructure stimulates economic growth or economic growth itself acts as a stimulus for any consequent growth in transport infrastructure. As already noted, understanding such dependency between transport infrastructure and economic growth would be vital in the effective design and implementation of transport policies for an economy aspiring to grow. For instance, augmentation of transport infrastructure will in general be expected to aid higher growth in the economy. So transport infrastructure could be thought of as a useful factor in even predicting the future of an economy both in the short run and long run. In fact, a plausible “feedback hypothesis” asserts that transport policies that improve efficiency in the transport sector may not have a detrimental or draining impact on economic growth; it may actually enhance the quality of the transport infrastructure to help facilitate meeting the expanding demand of the economy. Besides, transport infrastructure is also a vital social asset; it structures space and determines mobility. It influences trade flows as well as industrial and residence locations. Its construction and maintenance absorb significant resources though its highly visible and public nature sometimes raises important policy concerns especially on its environmental effects (more roads and parking space for cars vs. public transport) ( Short & Kopp, 2005). However, the link between transport infrastructure's growth causing economic growth appears to be relatively weak in a country like India. Still, since substantial economic expansion is expected in India over the next two decades, building of transport infrastructure to cause or facilitate it should at least be modest. But there are other drivers of the transport sector. The recent high growth in India is resulting not only from the country's rapid economic growth in a feed-back mode, but also due to population expansion and changing economic lifestyles. The reverse is now becoming increasingly visible; for instance, economic expansion in India is causing notable growth of roads and railways. While the former approach is called as demand driven (economic expansion causing the transport sector to grow), the latter is as supply driven (expanding transport facilities help the economy to grow). Such nexus suggests that economic growth and transport infrastructure may perhaps be jointly determined to help in the formulation of appropriate policies, because economic growth is closely related to transport as higher economic growth requires added transport infrastructure. Likewise, augmentation of transport infrastructure needs support from a higher level of economic growth. So, two related hypotheses now exist in the literature about the nexus between transport infrastructure and economic growth. These are, respectively, transport infrastructure led-growth hypothesis (TILGH), and growth led-transport infrastructure hypothesis (GLTIH). It must be noted that for policy formulation purposes, such causality may not be known a priori—a key motivation for the present study. Investigations of these two hypotheses (TILGH and GLTIH) are readily available in the literature (see Kulshreshtha, Nag, & Kulshreshtha, 2001; Ramanathan, 2001), yet their outcomes are very inconsistent as well as controversial. This is mostly due to the differences in country-specific studies, time periods, methodology, and the different proxies for transport infrastructure and economic growth used. The differences of these results are specified on the basis of direction of causality and its long term impact on transport policy. Such dependency may be represented in three possible ways: unidirectional causality between transport infrastructure and economic growth, bidirectional causality between transport infrastructure and economic growth and no causality between transport infrastructure and economic growth. The link between infrastructure provision and economic growth has been the subject of extensive discussion during the last decade (see Banister & Berechman, 2001). Llanto (2007), using data on road quality for both the total road network and local road network, finds that the quality of roads has a positive and significant effect on regional growth. This finding is in line with that of Mody and Wang (1997), who also concluded that transport has had a positive impact on economic growth in China. Fernald (1999), using data from 29 manufacturing industries form 1953–1989, finds causality from roads to productivity. Fernald's findings endorse that the productivity decline in US manufacturing after 1973 might have been a result of lower public spending on road infrastructure. Canning and Bennathan (2000), using cointegration methods for a panel of 41 countries, find that the length of paved roads is highly correlated with physical and human capital. But they also observed that the marginal return to roads declines rapidly if the length of roads is increased in isolation from other inputs. This implies that infrastructure investments are not sufficient by themselves to yield large changes in output. This finding is in line with that of Gannon and Zhi (1997), who also concluded that transport access is complementary to other services such as health and education. Studies by Fan, Jitsuchon, and Methakunnavut (2004) in rural India, China and Thailand also estimate the effect of infrastructure investments on economic growth and poverty. The results from these studies consistently show the importance of road investments in promoting economic growth and poverty reduction. In India, public investment in rural roads was found to have had the largest positive impact on agricultural growth (Fan, Hazell, & Thorat, 1999) while in China and Thailand, road investments were found to have contributed significantly to growth in non-farm sectors in particular and overall economic growth in general (Fan, Zhang, & Zhang, 2002, 2004). The present study is aimed at delving a bit deeper into the speculated nexus between the state of transport infrastructure and economic growth observed in India during 1970–2010. The rest of the paper is organized as follows: Section 2 presents a brief on the Indian transport sector. Section 3 describes econometric methodology used in this study and data descriptions. Section 4 presents empirical results and the discussion thereof. The final section offers conclusion and policy implications.

This study has examined the presence of any nexus between transport infrastructure and economic growth in India using the data for the 1970–2010 period. This analysis is deemed to be vital in the effective design and implementation of transport policies in this rapidly growing economy. Using cointegration and Granger causality test, this study has concluded the following: 1. Bidirectional causality exists between road transport infrastructure and economic growth. That means that road transport causes economic growth and vice versa. There are many reasons for it. First, road transport is one of the basic inputs in the production process; hence, an increase in road transport would be expected to have a positive effect on economic growth. This is consistent with the findings of Llanto (2007). Similarly, there are at least two reasons why economic growth has boosted road transport development in India. First, economic growth has resulted in an expansion in the commercial and industrial sectors, and in particular in the manufacturing sector, to facilitate which road transport would be a basic input. Second, higher disposable income has increased demand for better road infrastructure for household entertainment. 2. Bidirectional causality exists between road transport infrastructure and gross domestic capital formation. This implies that when road transport steps up, both in quantity and quality, government can charge toll tax and that can contribute to government's revenue, a part of which can contribute to increased gross domestic capital formation. On the contrary, when there is higher gross domestic capital formation, it may be used for expanding economic investment including that in road transport; hence, building roads contributes to economic growth and a part of this growth can expand road transportation in India. 3. Bidirectional causality exists between economic growth and gross domestic capital formation. This implies that when the economy grows, people's individual income also increases and a part of the increased income can contribute to gross domestic capital formation. Similarly, when gross domestic capital formation increases, it can be used to raise socio-economic investment and hence to contribute to economic growth. 4. A unidirectional causality exists from railway infrastructure to both economic growth and gross domestic capital formation. This result reveals that lowering the railway infrastructure in the country's transport mix would lead to a fall in economic growth and gross domestic capital formation. So, in India, railway indeed seems to play an important role in the transport portfolio. This implies that boosting economic growth in India would require an enormous railway infrastructure, even if there are many other factors contributing to economic growth, railway being only one of such factors. To summarize, for India, transport infrastructure not only influences economic growth but also gross capital formation. It is therefore suggested that increasing transport facility (both road and railway) along with gross capital formation will lead to more pervasive economic growth in India. The achievement of higher economic growth through transport infrastructure would be due to its various direct and indirect benefits imparted to the economy. But it is easy to observe that in India, the level of transport infrastructure is not so good, both in quantity and quality, in contrast to that in developed countries. The positive results implied in this study would therefore be much better if substantial improvement in transport infrastructure occurred. Thus, since transport infrastructure is found to be a “big deal” for economic growth, a suitable transport policy should be retained to maintain sustainable economic growth in the country. Given the geographical spread of population and industries in India, an appropriate modal mix of transport is deemed to be necessary to promote economic development ( Raghuram & Babu, 2001). A piecemeal approach (with seemingly unclear policies driving it) to such a vital issue, however, may lead to serious consequences (e.g. wastage of resources) and may slow down economic growth in the long run ( Pradhan, 2007). Hence, in order not to adversely affect economic growth, efforts must be made to encourage government investment in transport infrastructure and to overcome the constraints (e.g., land acquisition) facing the expansion of the nation's transport infrastructure. In short, this study, based on the country's macroeconomic data, suggests that the Indian government must upgrade and expand the country's transport infrastructure with top priority actions. Such a policy would greatly help in sustaining the good momentum India has built to raise its economic prosperity.