Government Quality and the Economic Returns of Transport Infrastructure Investment in European Regions

Abstract

Transport infrastructure investment is a cornerstone of growth-promoting strategies. However, in the case of Europe the relevant literature is increasingly failing to find a clear link between infrastructure investment and economic performance. This may be a consequence of overlooking the role of government institutions. This paper assesses the connection between regional quality of government and the returns of different types of road infrastructure in EU regions during the period between 1995 and 2009. The results unveil a strong influence of regional quality of government on the economic returns of transport infrastructure. In weak institutional contexts, investments in motorways -- the preferred option by local governments -- yield significantly lower returns than the more humble but possibly more efficient secondary road. Government institutions also affect the returns of transport maintenance investment.

Keywords: economic growth, Europe, government quality, institutions, public capital investment, regions, transport infrastructure

JEL Classification: O43, R11, R40, R58