Transportation Infrastructure and Total Factor Productivity : Development Heterogeneity and Resilience under Adverse Shocks

Overview & Synopsis

Weak total factor productivity (TFP) growth has become a central concern in explaining sluggish growth performance, particularly in emerging-market and low-income economies. At the same time, constrained fiscal and investment conditions have increased the importance of using scarce public resources effectively. These conditions make it important to investigate, from a cross-country perspective, what is associated with productivity performance and what shapes productivity losses during adverse shocks. The paper examines this issue along two margins: a structural margin focused on transportation infrastructure, a public-investment-intensive form of capital that may enhance productive efficiency, and a resilience margin through which governance and infrastructure may shape the productivity costs of adverse shocks. Using annual cross-country panel data for more than 100 countries and a dynamic panel system GMM framework, the analysis finds that transportation infrastructure is positively associated with TFP, with larger estimated payoffs in lower-income countries. Severe crises are associated with larger productivity losses in poorer economies, but stronger rule of law and political stability are linked to smaller losses in the lowest-income quartile. Road infrastructure is also associated with smaller productivity losses during moderate downturns. The findings suggest that the productivity relevance of transportation infrastructure is greater where development constraints are more binding, while governance and infrastructure shape productivity costs during adverse episodes.