| It is widely accepted that highway investment can lead to economic growth. Early studies have shown that the economic impact of public infrastructure, including highways, is tremendous. However, as has been pointed out by later studies, these results are subject to a severe simultaneity bias.; This research aims to investigate the relationships between highway expenditure and economic performance by taking into account the simultaneity bias. Employing panel data from 49 countries over the period of 1991--2000, two single-equation models are estimated. The first model estimates the impact of highway expenditure on GDP. The second model estimates the opposite relationships, that of the impact of GDP on highway expenditure. The results show that both impacts are positive and significant. Then, the simultaneity effect is tested. As it is evident that a simultaneity effect exists, a Simultaneous Equations Model (SEM) is applied to the system of equations based on the two models above.; The results suggest that the impact of highways is still positive and significant, but of a smaller magnitude than in a single-equation model. Finally, the elasticity of the impact of highways on GDP is examined. The results show that the impact is insignificant for low- and high-income countries, while the impact is evident and positive for the middle-income countries. |
