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 newly developed data set for infrastructure investments in 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 the non-traded sectors. Second, we find that railroad investments, and to a lesser extent airports have clearly biased labor productivity gains toward the non-traded sectors, while the effects of port investments are more muted and mixed. Third, for social infrastructure investments, the effects tend to be large and again particularly favorable to the non-traded sectors. Fourth, for public utilities the effects are in general small, with the exception of investments in telecommunications, which have large positive effects mainly on non-traded sectors. We conclude that infrastructure investments have contributed to the growth of labor productivity in Portugal but have done so in a way that has benefitted 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.