Policy Paper 12

This paper provides a broad overview of the relationship between infrastructure and growth, focusing on the South African case. The paper develops an intuitive theoretical framework in which to analyse this relationship, identifying five specific channels through which infrastructure may effect growth: as a factor of production, a complement to other factors of production, a stimulus to factor accumulation, a stimulus to aggregate demand and a tool of industrial policy. A framework is developed for evaluating empirical analyses of this relationship, which explores the implications of different definitions and measures of infrastructure and of potential data and estimation challenges. The empirical literature on South Africa is then assessed against this framework.