Investment in infrastructure is widely regarded as promoting economic growth. Moreover, infrastructure has a critical and often irreversible role in locking in patterns of development. Therefore, it is surprising that macroeconomic growth theories do not explicitly incorporate the notion of infrastructure systems. This lacuna is studied here, exploring the mechanisms via which infrastructure can impact an economy’s growth rate and how these mechanisms may be represented in existing macroeconomic growth theories. We confirm the important role of transport and digital communications infrastructure in reducing the cost of trade, thereby facilitating economies of scale as well as knowledge accumulation. We also consider the limiting effect that inadequate infrastructure can have on economic growth. Some, but not all, economic functions of infrastructure can be represented in current macroeconomic models due to their inherently non-spatial nature: Romer models include knowledge accumulation and energy economics tackles resource flows in the economy. New economic geography with growth, finally, allows for a representation of transport infrastructure due to a more spatial approach. Alterations to the standard investment feedback cycle, allowing for hybridisation of current theories, are identified. These provide the basis for a future programme of work which will include explicit implementations of infrastructure in macroeconomic growth theories.
The role of infrastructure in macroeconomic growth theories
Carlsson, R., Otto, A. and Hall, J. W.