An empirical analysis of three econometric frameworks for evaluating economic impacts of transportation infrastructure expenditures across countries

• Study examined the relationship between transportation infrastructure and GDP.
• 40 countries with varied economies were analyzed with data from 1992 to 2010.
• OLS, random-effects and random-parameters models (RPM) were used for analysis.
• RPM adequately accounted for possible unobserved heterogeneity across countries.
• Elasticity values can be adopted as weights for evaluation between rails and roads.

Transportation infrastructure expenditures can lead to greater productivity and increases in economic output due to the reduction in transportation costs, improvements in access to markets and raw materials, reduction in travel times, congestion reductions, and many other benefits. These benefits can potentially allow countries to improve their comparative economic advantages. To better understand the impact of transportation infrastructure expenditures on national economies, the present paper undertakes an aggregate study of the relationship between transportation infrastructure expenditure and gross domestic product from economies in 40 countries. Three econometric frameworks (ordinary least squares, random-effects and random-parameters models) were used to investigate the impacts of transportation infrastructure expenditure across countries using data from 1992 to 2010. The random-parameters model was observed to adequately account for possible unobserved heterogeneity across countries. As expected, the estimation results showed considerable variability across countries, with the impact of transportation infrastructure expenditure varying greatly as a function of the country’s existing transportation infrastructure and the reliance of specific economic sectors on transportation in each nation.