Infrastructure Investment, Labor Productivity, and International Competitiveness: The Case of Portugal

This study analyzes the effects of infrastructure investment on labor productivity at the industry level using a new data set for Portugal. We consider twenty-two sectors and twelve infrastructure assets. We focus on the differential effects on traded and non-traded sectors. We find, first, that investment in national roads have positive effects, particularly large for public services, while the effects of investments in municipal roads are mixed, and investments in highways have mostly benefited non-traded sectors. Second, we find that railroad investments, and, to a lesser extent, airports have gains clearly biased toward non-traded sectors, while the effects of port investments are more muted and mixed. Third, for social infrastructures, the effects tend to be large and again particularly favorable to non-traded sectors. Fourth, for public utilities the effects are in general small, with the exception of telecommunications, which have large positive effects mainly on non-traded sectors. We conclude that infrastructure investments have contributed to the growth of labor productivity but have done so in a way that has benefited mostly non-traded goods sectors. This may be a matter of concern for a small open economy in a currency union and with a development model greatly reliant on exports.