Abstract:
Economic growth is a complex phenomenon and a sensitive issue when it comes to malfunctioning
economies. Since the emergence of this discipline, multitude of theories held saving rates, population
growth rates, physical and human capital and total factor productivity (TFP) as determinants of economic
growth. Hall and Jones (1999) defined social infrastructure as institutions and government policies that
determines economic environment within which individuals accumulate skills, and firms accumulate
capital and produce output; and empirically proved that social infrastructure is the driving force behind
economic growth. This research study seconds this hypothesis and econometrically tests the relationship
between the two variables for cross sectional data of 127 countries for three differing years, i.e. 1987,
1996 and 2004. Using method of two stage least squares, it is empirically proven that social infrastructure
significantly and positively impacts the economic growth, measured by output per worker. Second
hypothesis tested by this study is, the impact of social infrastructure on output per worker is transmitted
through components of production function i.e. TFP, human and physical capital. The largest magnitude
of impact is channeled via TFP, followed by physical and then human capital. The results of these
hypotheses corroborate the findings of Hall and Jones (1999) for all the tested periods. However, the
present research study also test the hypothesis that impact of social infrastructure on output per worker
varies for varying groups of countries. Our results show that, the said impact is much stronger in lower
and upper middle income countries rather than in high and lower income countries. All the findings are
graphically and statistically represented.
