Quest Journals Journal of Research in Humanities and Social Science Volume 5 ~ Issue 9 (2017) pp: 28-32 ISSN(Online) : 2321-9467 www.questjournals.org *Corresponding Author: Nor Aznin Abu Bakar 28 | Page School of Economics, Finance and Banking, Universiti Utara Malaysia Research Paper The Effects of Infrastructure Development on Economic Growth in the Northern States of Malaysia Nor Aznin Abu Bakar 1* , Siti Hadijah Che Mat 2 1,2 School of Economics, Finance and Banking, Universiti Utara Malaysia Corresponding Author: Nor Aznin Abu Bakar * Received 07 Oct., 2017; Accepted 14 Oct., 2017 © The author(s) 2014. Published with open access at www.questjournals.org ABSTRACT: This study analyse the effects of infrastructure development on economic growth in the northern states of Malaysian namely Kedah, Perlis, Pulau Pinang and Perak. An infrastructure development index is developed by merging four main indicators with several sub indicators and using the principal component analysis (PCA). The infrastructure development index is then used together with other variables such as labour force and capital investment to estimate its effect on the economic growth. Using the Hausman’s specification test, the random effect model is chosen to estimate the impact of infrastructure on economic growth. Findings indicate that infrastructure development has a positive and significant impact on economic growth of the four states. Likewise, results obtained indicate that total labour force and total capital investment also positively and significantly affect the economic growth. Therefore, it is important for the policy makers to review and implement necessary policies that can improve infrastructure facilities as well as human capital development to promote economic growth in the region. Keywords: Economic Growth, Infrastructure Development, Endogenous Growth Theory, Random effect model I. INTRODUCTION Infrastructure means the basic structure that support and lubricates the economic activity to flow. The term indicates the road network, electricity, water and sanitation, telecommunication sector, including the cellular phones and internet service (ADB, 2017). Infrastructure plays an important role in the process of economic development and it has long been acknowledged by researchers and policy makers. Infrastructure development, both economic and social has been one of the main determinants of economic growth and lack of infrastructure remains to be one of the main obstacles that deterred economic growth in many developing countries. The role of infrastructure in promoting economic growth has been well documented in the literature. Amongst others are Aschauer, 1989; Calderon and Serven, 2003; Estache, 2006; Sahoo, Dash and Nataraj, 2010. Aschauer (1989) in his seminal work quantified the impact of infrastructure on income and growth. Later there was a wide range of empirical results proving the essential role of infrastructure on economic growth. Many studies have been carried out to see the relationship between infrastructure development and economic growth. The impact of infrastructure on economic growth is analyzed both from the theoretical and empirical viewpoints. The importance of infrastructure to economic growth is commonly analyzed using both the households and firms by looking at the availability and quality of infrastructure, causing in different decisions to invest. Specifically, the infrastructure services are used as final consumption items by households and as an intermediate consumption item for firms. The availability of infrastructure services significantly influence the development of regions and countries. The impact of infrastructure development on a country's economic development will lead to an important issue for the strategic and development policy management.