Does energy infrastructure spur total factor productivity (TFP) in middle-income economies? An application of a novel energy infrastructure index

Even though there are numerous empirical investigations on energy consumption's impact on economic growth, the relationship between energy infrastructure and total factor productivity (TFP) appears to be understudied in academic literature. The present study examines the dynamic nexus between energy infrastructure and TFP for the panel data of 67 upper and middle-income countries during 1990-2019. First, we contribute to devising a comprehensive energy infrastructure index by covering qualitative and quantitative dimensions of energy resources using the unobserved-component model. Second, this study investigates the short and long-run relationship between the variables using the cross-sectional autoregressive distributed lag (CS-ARDL) approach. The investigation procedure confirms that energy infrastructure significantly and positively increases TFP in both the long and short run. In addition, diverse macroeconomic dynamics, e.g., foreign direct investment, human capital, technological advancement and trade openness, also positively influence TFP in these countries. Third, by categorizing the sample into upper-middle income and lower-middle income countries, this study finds higher coefficients of the energy infrastructure of the upper-middle-income group than the lower-middle-income economies to stimulate TFP. Furthermore, this study's results remain robust across the alternate estimation parameter, the wavelet coherence analysis technique. Finally, the study proposes some significant policy suggestions.

Automated summary

Despite ample empirical evidence on the impact of energy consumption on economic growth, there is a lack of research on the relationship between energy infrastructure and total factor productivity (TFP) in academic literature. This study analyzes panel data from 67 upper and middle-income countries between 1990 and 2019 to examine the dynamic nexus between energy infrastructure and TFP. The findings show that energy infrastructure significantly and positively increases TFP in both the short and long run, along with other macroeconomic dynamics such as foreign direct investment, human capital, technological advancement, and trade openness. The study also suggests that the impact of energy infrastructure on TFP is stronger in upper-middle-income countries compared to lower-middle-income countries, and the results are robust across different estimation parameters and wavelet coherence analysis.