Explicit and Implicit Analysis of Infrastructure Investment: Theoretical Framework and Empirical Evidence

In this paper we provide two theoretical frameworks and subsequent empirical estimations for analysis of infrastructure’s impact on economy. First, we incorporate variable of public infrastructure investment into neoclassical growth framework and conduct cross-country empirical estimation. Then, we consider difference-in-difference approach and proceeding from empirical results focusing on case of railway connection in Uzbekistan derive theoretical framework explaining nature of infrastructure’s impact based on target profit pricing approach. Empirical evidence obtained through estimation of augmented neoclassical growth framework shows that infrastructure investment constitutes a significant determinant of economic growth along with other variables of private investment and human capital. Our empirical results for case of railway connection in southern part of Uzbekistan demonstrate differential impact of the infrastructure across regions, sectors and time. Theoretical framework based on target profit pricing approach explains conditions for profit and loss for companies in post-infrastructure period.