How productive is infrastructure? A new approach and evidence from rural India

There have been competing arguments about the effect of public infrastructure on productivity. Level-based and debate-based regressions often lead to different estimates. To help reconcile this difference, this article applies the GMM method to first test for causality to check for length of lagged relationships and the existence of reverse causality before specifying a final model and deciding the estimation procedure. This approach is illustrated using a panel data set for India. The results show that infrastructure development is productive, providing supporting evidence to reverse the trend of declining investment in rural infrastructure.