Econometrical Investigation on Infrastructure Investment and Economic Development in China: A Case Study Using Vector Autoregression Approach

Over the decades, numerous studies have been conducted on investigating the relationship between economic development and infrastructure investment with a wide range of results. Targeting developing countries, this study analyzed this relationship using Gross Domestic Product (GDP), railway mileage, and highway mileage from Year 1964 to Year 2004 in China within the general Vector Autoregression (VAR) framework. Non-stationarity test showed that the selected macroeconomic variables are non-stationary with integration order 1. In addition, cointegration and error correction analyses showed that the selected variables are cointegrated with positive contribution of railway investment to GDP and negative contribution of highway investment to GDP in the long run. The findings are discussed and argued as in agreement with the infrastructure development situation in China. Social and economic situations relating to the analysis are discussed, based on which future research is recommended on handling the data generating mechanism change and the social and economic diversity across different regions in China.