Public Infrastructure Investment and Economic Growth : A Sector Wise Investigation for India Using Westerlund Panel Cointegration Approach

Abstract

The paper aims to empirically analyze the relationship between Public Infrastructure Investment and economic growth for India using yearly data for its twenty-eight states (excluding Telangana) over the time-period of 1999-00 to 2014-15. We have aimed to assess this eye catching issue after the recent focus of Indian government to devote a majority of public funds to finance Infrastructure. For all the states, we have taken Public Investment data for six major sub sectors falling under overall Infrastructure sector: Transport, Education, Sports, Art and Culture, Medical and Public Health, Water supply and sanitation, Irrigation, Energy/Power. The Per Capita Gross State Domestic Product is taken as an indicator to represent economic growth. For empirical analysis, we apply panel unit root and cointegration tests, and estimate a panel error correction model. The Per Capita Gross State Domestic Product along with Public Investment in analyzed sectors have a unit root at their levels suggesting that there is presence of long-term relationships among the variables for the whole sample. Finally, Granger causality tests are applied to check for the presence of causal relationships between Per Capita Gross State Domestic Product and Public Investment in different sub sectors of Infrastructure. The research study proposes that the state governments across India should focus upon private as well as foreign direct investment options which would ultimately help in improving the landscape of India’s Infrastructure sector.