# **Table 6. Infrastructure and Economic Growth**

_Dependent Variable: Growth in GDP per capita (annual average, percent)_ , _Sample: 97 countries, 1960-2005 (non-overlapping 5-year_ _<u>period observations)</u>_ <u>,</u> _GMM-IV System Estimation_

|**Variable**|**[1]**|**[2]**|**[3]**|**[4]**|
|---|---|---|---|---|
|**Infrastructu**<br>|**re Development (synt**|**hetic indexes):**|||
|Infrastructure Quantity (IK1) 1/|2.6641<br>**|2.1927<br>**|2.0260<br>*|1.0609|
||(1.105)|(0.981)|(1.328)|(1.403)|
|IK1 squared|..|..|-0.0403<br>(0.247)|..|
|IK1 * Sub-Saharan Africa|..|..|..|0.2897<br>(1.450)|
|Quality of Infrastructure Services (IQ1) 2/|..|1.9581**|1.9373**|1.5233<br>*|
|||(0.549)|(0.598)|(0.800)|
|IQ1 squared|..|..|-0.0265<br>(0.298)|..|
|IQ1 * Sub-Saharan Africa|..|..|..|1.3582<br>(1.281)|
||**Control Variables**||||
|Initial Output per capita / per worker|-4.3056<br>**|-6.2404<br>**|-5.9773<br>**|-5.2489<br>**|
|_(in logs)_|(1.099)|(1.285)|(1.815)|(1.635)|
|Education|1.9914<br>*|2.7857**|2.8253**|2.9420<br>**|
|_(secondary enrollment, in logs)_|(1.095)|(1.160)|(1.175)|(1.376)|
|Financial Development|0.4856|-0.0147|-0.0231|-0.0489|
|_(private domestic credit as % of GDP, logs)_|(0.605)|(0.492)|(0.508)|(0.640)|
|Trade Openness|1.2705|1.0965|1.1278|0.9347|
|_(trade volume as % of GDP, logs)_|(1.053)|(1.410)|(1.380)|(1.363)|
|Lack of Price Stability|-0.0990 **|-0.0510<br>*|-0.0511<br>*|-0.0618 **|
|_(inflation rate)_|(0.036)|(0.033)|(0.033)|(0.031)|
|Government Burden|-1.3229|-1.9217*|-2.0330*|-1.2706|
|_(Government consumption as % GDP, logs)_|(1.274)|(1.281)|(1.297)|(1.363)|
|Institutional Quality|0.4748|-0.3029|-0.2769|0.2056|
|_(ICRG Political risk index, logs)_|(2.418)|(1.735)|(1.632)|(2.408)|
|Terms of Trade Shocks|0.0197|0.0944*|0.0991*|0.0768|
|_(first differences of log terms of trade)_|(0.066)|(0.051)|(0.053)|(0.055)|
|**Observations**|**582**|**582**|**582**|**582**|
|Specification Tests (p-values)|||||
|(a) A-B test for 2nd-order serial correlation|(0.360)|(0.482)|(0.484)|(0.481)|
|(b) Hansen test of overidentifying restrictions|(0.241)|(0.275)|(0.211)|(0.190)|
|(c) Difference-Sargan tests|||||
|All instruments for levels equation|(0.166)|(0.340)|(0.290)|(0.197)|

_Numbers in parentheses are robust standard errors. Our regression analysis includes an intercept and period-specific dummy variables. * (**) denotes statistical significance at the 10 (5) percent level. Standard errors are computed using the small-sample correction by Windmeijer (2005) 1/ See Calderon and Serven (2010) for the definition of the synthetic indices of infrastructure quantity and quality._ Figure 9 depicts the growth benefits of closing the gap in terms of quantity and quality of infrastructure relative to the median of the world (excluding SSA) for each infrastructure sector.<sup>14</sup> For instance, growth per capita for the region would increase by 1.7 percentage points per year if it were to close the gap with the regional median of each infrastructure indicator. Narrowing the quantity infrastructure gap would deliver higher growth per capita by 1.2 percentage points per annum, while catching up in terms of quality brings about higher growth

> 14 Note that if the contribution is zero, there is no gap between the region (and/or sub-region within SSA) and the benchmark.

_Infrastructure in Sub-Saharan Africa - 23_