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The Penalties of Inefficient Infrastructure

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  • Felix K. Rioja

    ()
    (Georgia State University)

Abstract

In most developing countries, irrigation, road, and power networks are not in good condition. In Latin America, for example, the effectiveness of such public infrastructure is only about 74% of that of industrialized countries. Low effectiveness imposes a cost on these countries in terms of forgone output. This paper develops a general-equilibrium model to study the long-run consequences of ineffective infrastructure. The model is solved numerically using parameters from seven Latin American countries. Results show that the long run penalty of ineffective infrastructure is about 40% of steady-state real GDP per capita. Raising effectiveness is shown to have sizable positive effects on income per capita, private investment, consumption, and welfare. Nevertheless, policymakers instead usually emphasize building new infrastructure. If effectiveness is low in the existing infrastructure network, new infrastructure investments can negatively affect per-capita income, private investment, consumption, and welfare. Copyright Blackwell Publishing Ltd 2003

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 7 (2003)
Issue (Month): 1 (February)
Pages: 127-137

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Handle: RePEc:bla:rdevec:v:7:y:2003:i:1:p:127-137

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Cited by:
  1. William Easterly & Timothy Irwin & Luis Servén, 2008. "Walking up the Down Escalator: Public Investment and Fiscal Stability," World Bank Research Observer, World Bank Group, vol. 23(1), pages 37-56, January.
  2. Dr. (elect.) Julia Korosteleva & Dr. Colin Lawson, . "The Belarusian Case of Transition: Whither Financial Repression?," Working Papers 2006_4, Business School - Economics, University of Glasgow.
  3. Douzounet Mallaye & Yogo Thierry Urbain, 2013. "Foreign aid and mobilization of growth factors in sub-Saharan Africa," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  4. Ongono, Patrice, 2009. "Consommation d'énergie et performances économiques au Cameroun
    [Energy consumption and economic performance in Cameroon]
    ," MPRA Paper 23525, University Library of Munich, Germany.
  5. Rosa Capolupo, . "The New Growth Theoris and their Empirics," Working Papers 2005_4, Business School - Economics, University of Glasgow.
  6. Rosa Capolupo, 2005. "THE NEW GROWTH THEORIES AND THEIR EMPIRICS, Discussion Paper in Economics, University of Glasgow, N. 2005-04 (http://www.gla.ac.uk/Acad/Economics," GE, Growth, Math methods 0506003, EconWPA.
  7. Barbara Kotschwar, 2012. "Transportation and Communication Infrastructure in Latin America: Lessons from Asia," Working Paper Series WP12-6, Peterson Institute for International Economics.
  8. Carlos Gustavo Machicado, 2007. "Macroeconomic and Welfare Effects of Public Infrastructure Investment in Five Latin American Countries," Development Research Working Paper Series 14/2007, Institute for Advanced Development Studies.
  9. Viegas, Miguel & Ribeiro, Ana Paula, 2013. "The Dutch experience: Assessing the welfare impacts of two consolidation strategies using a heterogeneous-agent framework," Economic Modelling, Elsevier, vol. 32(C), pages 351-360.
  10. Carlos Gustavo Machicado & Paúl Estrada, 2012. "Fiscal policy and economic growth: a simulation analysis for Bolivia," Analítika, Analítika - Revista de Análisis Estadístico/Journal of Statistical Analysis, vol. 4(2), pages 57-79, Diciembre.
  11. Antonio Estache, 2010. "A survey of impact evaluations of infrastructure projects, programs and policies," Working Papers ECARES 2010_005, ULB -- Universite Libre de Bruxelles.

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