Influence of transportation infrastructure on the relationship between institutions and economic performance

Purpose: This study aims to analyse the observation that the economics of many countries have boomed after the input of substantial investments into physical and social infrastructures. Design/methodology/approach: A structural equation model is formulated to examine the effect of transportation infrastructure on the relationship between institutions and gross domestic product per capita (GDPPC). This study further differentiates between developed and developing economies. Findings: The study identifies the different roles of transportation infrastructure in mediating the relationship between institutions and average income in these two types of economy. Institutions and transportation infrastructure positively influence GDPPC, whereas institutions positively influence transportation infrastructure. In addition, the results found indirect influence of institutions on GDPPC via transportation infrastructure. Originality/value: This study provides new insights into international business studies based on institutional theory and factor-mobility theory.