Railways Augmented Production Function for European Union Countries

Abstract

Transport and related infrastructure play a pivotal role in economic growth. It is especially important in case of European countries where efficient transport system allows to increase in international trade which stimulate economic growth. This study augments the empirical literature on transportation augmented neo-classical production function. It is done by introducing demand for railways into macro-production function of European Union. The data is collected from World Development Indicators for the period of 1985-2019. We apply both first and second generations of unit root test to examine stationarity and panel co-integration techniques to analyze long run relationship between national income and demand for railways. Robustness of tests is also done by using different estimators and country wise slopes. To detect the cause and effect, Granger and Dumitrescu-Hurlin causality tests are applied. Bi-directional causality between national income to demand for railways is found. Recommendations are made on the basis of empirical results.