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Macroeconomic and Welfare Effects of Public Infrastructure Investment in Five Latin American Countries

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Author Info
Carlos Gustavo Machicado () (Institute for Advanced Development Studies)

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Abstract

It has been widely documented that investment in infrastructure is important for economic growth, but little work has been done in relation to the impact of infrastructure investment on other macroeconomic variables. This paper develops a Dynamic Stochastic General Equilibrium (DSGE) model of a small open economy to study the effects of public investment in infrastructure on output, consumption, private investment, trade balance and welfare. The model is parameterized and solved for five representative countries from The Initiative for the Integration of Regional Infrastructure in South America (IIRSA), which include: Bolivia, Chile, Brazil, Venezuela and Argentina. I also analyze the growth effects on GDP by increasing or decreasing the effectiveness index of infrastructure in each of these countries. Naturally output will grow at a larger rate, if infrastructure is handled with greater efficiency.

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Paper provided by Institute for Advanced Development Studies in its series Development Research Working Paper Series with number 14/2007.

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Length: 25 pages
Date of creation: Dec 2007
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Handle: RePEc:adv:wpaper:200714

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Related research
Keywords: Infrastructure; Economic Growth; Welfare;

Find related papers by JEL classification:
H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
D60 - Microeconomics - - Welfare Economics - - - General

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  1. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December. [Downloadable!] (restricted)
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  2. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October. [Downloadable!] (restricted)
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  3. Timothy J. Kehoe, 2003. "What can we learn from the current crisis in Argentina?," Staff Report 318, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  4. Weitzman, Martin L, 1970. "Optimal Growth with Scale Economies in the Creation of Overhead Capital," Review of Economic Studies, Blackwell Publishing, vol. 37(4), pages 555-70, October. [Downloadable!] (restricted)
  5. Felix K. Rioja, 2003. "The Penalties of Inefficient Infrastructure," Review of Development Economics, Blackwell Publishing, vol. 7(1), pages 127-137, February. [Downloadable!] (restricted)
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