Nexus of infrastructure investment, economic growth and domestic credit level: evidence from China based on nonlinear ARDL approach

Zichu, Jin and Masih, Mansur (2018): Nexus of infrastructure investment, economic growth and domestic credit level: evidence from China based on nonlinear ARDL approach.

Abstract

Infrastructure has experienced a rapid development in China over the past decade. The economic contribution of infrastructure investment has been widely examined in the literature using various data and models. However, the results are inconclusive. This paper using Nonlinear ARDL tests the effect of infrastructure investment on both GDP and domestic private credit level. The paper finds that an increase in infrastructure investment will increase GDP but push the domestic credit level higher. The contribution of this paper is that a stable investment in infrastructure is needed, while the efficiency of the management is also important. Government should take care of the debt level and reduce the debt leverage, as more debt will eventually drag the economy down.

• Item Type: MPRA Paper
• Language: English
• Keywords: Infrastructure, GDP, domestic credit, NARDL, China
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods

References

Ansar, A., Flyvbjerg, B., Budzier, A. and Lunn, D. (2016). Does infrastructure investment lead to economic growth or economic fragility? Evidence from China. Oxford Review of Economic Policy, 32(3), 360-390.

Beyzatlar, M. A. and Kuştepeli, Y. (2011). Infrastructure, Economic Growth and Population Density in Turkey. International Journal of Economic Sciences and Applied Research, 4(3), 23 -37.

Borjigin, S., Yang, Y., Yang, X. and Sun, L. (2018). Econometric testing on linear and nonlinear dynamic relation between stock prices and macroeconomy in China. Physica A: Statistical Mechanics and its Applications, 493, 107-115.

Calderón, C. and Servén, L. (2008). Infrastructure and Economic Development in SubSaharan Africa. World Bank Policy Research Working Paper Series. No. 4712. Washington, DC: World Bank.

Canning, D. and Pedroni, P. (2008). Infrastructure, long‐run economic growth and causality tests for cointegrated panels. The Manchester School, 76 (5), 504-527.

Démurger, S. (2001). Infrastructure development and economic growth: an explanation for regional disparities in China?. Journal of Comparative economics, 29(1), 95-117.

Esfahani, H. S and Ramı́rez, M. T. (2003). Institutions, infrastructure, and economic growth. Journal of development Economics, 70(2), 443-477.

Hong, J., Chu, Z. and Wang, Q. (2011). Transport infrastructure and regional economic growth: evidence from China. Transportation, 38(5), 737-752.

Hong, L. (2004). Public Investment Policy in Long-run Economic Growth - General Congestion Public Infrastructure in Long-run Growth Model. Economic Research Journal, 3, 10-19.

Ismail, N. W. and Mahyideen, J. M. (2015). The Impact of Infrastructure on Trade and Economic Growth in Selected Economies in Asia. ADBI Working Paper 553. Tokyo: Asian Development Bank Institute.

Kwiatkowski, D., Phillips, P.C.B., Schmidt, P. and Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: how sure are we that economic time series have a unit root. Journal of Economics, 54 (1–3), 159–178.

Liu, S. L. and Hu, A. G. (2010). Transport Infrastructure and Economic Growth: Perspective from China’s Regional Disparities [J]. China Industrial Economics, 4, 14-23.

Pesaran, M. H., Shin, Y. and Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326.

Pradhan, R. P. and Bagchi, T. P. (2013). Effect of transportation infrastructure on economic growth in India: the VECM approach. Research in Transportation Economics, 38(1), 139-148.

Sahoo, P., Dash, R. K. and Nataraj, G. (2010). Infrastructure development and economic growth in China. Institute of Developing Economies Discussion Paper, number 261.

Sbia, R., Shahbaz, M. and Hamdi, H., (2014). A contribution of foreign direct investment, clean energy, trade openness, carbon emissions and economic growth to energy demand in UAE. Economic Modelling, 36, 191–197.

Shahbaz, M., Van Hoang, T. H., Mahalik, M. K. and Roubaud, D. (2017). Energy consumption, financial development and economic growth in India: New evidence from a nonlinear and asymmetric analysis. Energy Economics, 63, 199-212.

Shin, Y., Yu, B. and Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in Honor of Peter Schmidt, Springer, 281–314.

Tsui, K. Y. (2011). China’s Infrastructure Investment Boom and Local Debt Crisis. Eurasian Geography and Economics, 52(5), 686–711.