On the Effects of Infrastructure Investments on the Regional Economic Mix in Portugal

Abstract

In this paper, we deal with the issue of the effects of infrastructure investments on the regional mix of economic activity in Portugal. To address this issue we use a new data set for infrastructure investments in Portugal at the level of the NUTS II. We use a region-specific VAR approach, which considers, for each region, not only the effects of infrastructure investments in the region itself but also the regional spillover effects for each region from infrastructure investments elsewhere. Our results can be summarized as follows. First, we find that the largest aggregate effects are for investments in municipal roads, airports, ports, and education. Second, regional spillovers are very important across the board, and are particularly relevant for municipal roads and highways. Third, we find that for road transportation infrastructures, investments in national roads shift the regional concentration of economic activity towards North, Lisbon, and Alentejo, while investments in municipal roads have the same effects for Centre and investments in highways once again in North, Lisbon and Alentejo. For other transportation infrastructures the shifts in regional economic composition occur in North and Alentejo for railroad investments, Lisbon, Alentejo, and Algarve for airport investment, and Centre and Algarve for port infrastructure investments. Finally, investments in both education and health shift the regional output mix towards North and Centre, and in the case of health Alentejo as well. Accordingly, the aggregate effects of infrastructure investments hides a wide variety of effects across regions and across different infrastructure assets. Being mindful of these differences is fundamental in designing policies that help with aggregate economic performance without increasing regional disparities.