Does infrastructure development contribute to EU countries’ economic growth?

Abstract

Traditionally, infrastructure has been considered an essential component of a country’s development. Therefore, European Union (EU) Member States (MS) invest heavily in this area. A lot of support for infrastructure development is also directed from the EU Structural Funds (SF). However, the results of previous studies do not fully reveal whether the development of infrastructure contributes to EU MS’ economic growth and what factors mediate this effect. Considering the limitations of previous studies, this article aims to examine whether the development of different types of infrastructure (transport, information and communication technologies (ICT), energy, and water and sanitation) contribute to economic growth and to assess whether government quality affects the growth outcomes of infrastructure. Empirical estimations are based on neoclassical specifications and cover 28 EU countries from 2000 to 2019. Estimates revealed that all types of infrastructure positively correlate with growth but not all correlations are significant. Only mobile cellular, which proxies ICT infrastructure, electricity production, which proxies energy infrastructure, and pipeline transport infrastructure significantly affect economic growth. Water and sanitation infrastructure development do not significantly contribute to EU MS’ economic growth. The institutional environment, i.e., less corruption, has a considerable positive effect on the growth outcomes of electricity production and pipeline transport infrastructure.