The nexus between economic growth and transport infrastructure in Indonesia

The relationship between transport infrastructure and economic growth has attracted many researchers, including in Indonesia. However, all of these studies show quite mixed results depending on the approach used, the study's location, and the time studied. This study uses both time-series data analysis and panel data analysis to investigate the relationship between economic growth and three transport infrastructure types. By using time-series data analysis, by employing VAR/VECM, this study concludes that there is a unidirectional relationship from economic growth to the growth in road infrastructure, not vice versa, while the relationships of per capita economic growth with the growth in air and sea transport infrastructure are not significant. A similar result also has been found using panel FEM with robust standard errors. All the growths in three types of infrastructure have no significant effect on per capita economic growth. Similarly, the effects of the level of both road transportation infrastructure and sea transportation infrastructure on economic growth are also not significant. However, the effect of the level of air transportation infrastructure is significant and negative. Furthermore, in contrast with the effect of the growth rate of transport infrastructure on economic growth, the effect of growth in gross capital formation per capita, as a proxy of infrastructure investment, is positive and significant in all equations using FEM with robust standard errors. This shows that capital investment plays an essential role in Indonesia's economy and might confirm that the growth in infrastructure investment in-creases the demand for intermediate goods and labours, which can stimulate a multiplier effect in the economy.