Abstract
In this study, we investigate the extent to which infrastructure development affects economic performance in Africa. To pick up the economy-wide effects and possible feedback mechanism from network externalities, we jointly estimate a system of equations that endogenizes the relationship between infrastructure demand and supply with an aggregate output equation, using nonlinear 3SLS-GMM techniques. We find causal evidence of a significant positive link between infrastructure development and economic growth, especially for transport infrastructure. We also find evidence of infrastructure’s increasing returns to growth, with the strongest growth potential materializing after a critical mass of infrastructure has been built and network externalities kick in. One policy implication from our findings is that it is “big-push” and not marginal infrastructure improvements that are required to attain a critical mass, kick start network externalities, and fully unlock infrastructure’s growth potential for the continent. Our results reinforce the case for regional infrastructure integration in Africa.
