Does Infrastructure Really Cause Growth? The Time Scale Dependent Causality Nexus between Infrastructure Investments and GDP

This paper investigates the relationship between infrastructure investments and economic activity in Sweden for the period 1800-2000. In order to overcome the problem of endogeneity, independent time scales are used to analyze the relationship. The paper also examines the dynamics between the variables by testing for causality in the Granger sense and constructing a vector autoregressive model separately for each time scale. The finding is that the causality nexus between growth and transport infrastructure investment is timescale-dependent since it reverses in a comparison of the short-run dynamics (24 years) and the longer-run dynamics (8-16 years). This causality reversal is unique for infrastructure investments compared to investments in other sectors of the economy.