Public Investment in Transportation and Economic Growth in Brazil

The economic literature suggests investment in infrastructure as one of the factors responsible for allowing a sustained growth of the economy. Private investment in this sector, however, is often encountering insurmountable obstacles due to the small number of business groups with the financial capacity to withstand such disbursements and the risks involved in the projects. Therefore, especially in developing countries that do not have a homogeneous distribution of this infrastructure through its territory - as is the case of Brazil - public participation appears as a fundamental importance alternative capable to provide the investment needs.

Accordingly, we evaluated the impact of public spending on transport on the economic growth of the Brazilian states between 1986 and 2007 using panel data. Results showed that public investment in the transport sector causes a statistically significant and positive effect on long-term economic performance of the Brazilian states and potentially contribute to the reduction of income inequality between them. Also according to the evidences found, public spending on transport infrastructure is more productive in less developed regions of the country (North, Northeast and Midwest). This means that the same amount of public spending has different impact depending on what region of the country it is applied. Thus, it is shown that the public policies implemented in the country are of utmost importance to promoting economic growth and regional development in Brazil.

Keywords: economic growth, public spending on transport, panel data.

JEL: C23, H54, O18.