Endogenous growth theories: Agglomeration benefits and transportation costs.

The role of infrastructure in global and local economic development can hardly be overstated (World Bank, 1994). In particular, as reported by Calderon and Serven (2004), its role has been stressed along two main dimensions: its effects on economic growth and its effects on income inequality. Along the first dimension, most studies focus on the impact of infrastructure on aggregate output, finding it positive. This is highlighted in a seminal contribution by Aschauer (1989), who finds that the stock of public infrastructure capital is a significant driver of aggregate total factor productivity (TFP). Even though subsequent efforts question Aschauer’s quantitative assessment, overall his qualitative insight survives more sophisticated econometric scrutiny (see, for example, Gramlich, 1994; Röller and Waverman, 2001). In particular, Calderon and Serven (2003) identify positive and significant impacts on output of three types of infrastructure (telecommunications, transport and energy) and show that such impacts are significantly higher than those of non-infrastructure capital. The link between infrastructure and long-run growth is much less explored. Easterly and Rebelo (1993) find that public expenditure in transport and communications fosters growth. This result is confirmed by Sanchez-Robles (1998) in the case of physical infrastructure and by Easterly (2001) as well as Loayza et al. (2003) in the case of communications (telephone density).