Is All Infrastructure Investment Created Equal? The Case of Portugal

Pereira, Alfredo and Pereira, Rui (2017): Is All Infrastructure Investment Created Equal? The Case of Portugal.

Abstract

Using a newly-developed data set, we analyze the effects of infrastructure investment on economic performance in Portugal. A vector-autoregressive approach estimates the elasticity and marginal products of twelve types of infrastructure investment on private investment, employment and output. We find that the largest long-term accumulated effects come from investments in railroads, ports, airports, health, education, and telecommunications. For these infrastructures, the output multipliers suggest that these investments pay for themselves through additional tax revenues. For investments in ports, airports and education infrastructures, the bulk of the effects are short-term demand-side effects, while for railroads, health, and telecommunications, the impact is mostly of a long term and supply side nature. Finally, investments in health and airports exhibit decreasing marginal returns, with railroads, ports, and telecommunications being relatively stable. In terms of the other infrastructure assets, the economic effects of investments in municipal roads, electricity and gas, and refineries are insignificant, while investments in national roads, highways, and waste and waste water have positive economic effects, but too small to improve the public budget. Clearly, from a policy perspective, not all infrastructure investments in Portugal are created equal.

• Item Type: MPRA Paper
• Language: English
• Keywords: Infrastructure Investment, Multipliers, Budgetary Effects, VAR, Portugal.
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H5 - National Government Expenditures and Related Policies > H54 - Infrastructures ; Other Public Investment and Capital Stock; H - Public Economics > H6 - National Budget, Deficit, and Debt > H60 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

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