Growth outcomes of transport infrastructure investment in the EU: the role of government quality and diminishing marginal effects

Abstract

The research investigates the impact of transport infrastructure investment (TII) on economic growth. We applied non-linear neoclassical specification to our unbalanced panel data that covers 27 EU countries (Cyprus is excluded due to missing data and the United Kingdom is a part of the sample) for the period of 2000–2019. Our model includes a multiplicative term to evaluate if the government quality mediates the effect of TII on growth. Our research reveals the positive and statistically significant relationship between TII and economic growth but with a diminishing return. Estimation of the government quality as a possible moderator of the effect that TII has on growth shows that control of corruption plays a significant role in the TII-growth nexus. We find that in countries with a low level of control of corruption, TII has a statistically significant negative effect on growth. Keywords: economic growth, transport infrastructure, transport infrastructure investment, government quality, control of corruption, diminishing marginal effects.