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The Output Cost of Latin America’s Infrastructure Gap

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  • César Calderón
  • Luis Servén

Abstract

Latin American has lost substantial ground relative to other developing and developed regions in terms of the quality and quantity of infrastructure over the last two decades. For instance, Latin America’s infrastructure gap in infrastructure growth relative to that of the seven successful economies of East Asia grew by 40-50 percent for road length, 50-60 percent for telecommunications, and as much as 90-100 percent in terms of power generation capacity over the 1980-97 period. The consequences of this loss of ground or growth and welfare in the region are a matter of concern. Lack of adequate infrastructure services results in lower productivity and higher production costs for private producers. Poor road and telecommunication networks raise transport and, more generally, logistic costs, which have been shown in comparative studies to exceed the international norm by wide margins (Guasch, 2001). The reduced profitability in turn discourages private investment. Through all these channels, the result is lower output growth. As with infrastructure, Latin America’s loss of ground was particularly marked in the 1980s. We find evidence of a strong empirical association between output and infrastructure although this need not reflect causation from infrastructure services to aggregate output. The present paper wants to determine the role of Latin America’s growing infrastructure gap in the widening of the output gap. We devote our efforts in this paper to answer this question.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 186.

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Date of creation: Oct 2002
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Handle: RePEc:chb:bcchwp:186

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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  2. Canning, David & Bennathan, Esra, 2000. "The social rate of return on infrastructure investments," Policy Research Working Paper Series 2390, The World Bank.
  3. Demetriades, Panicos O & Mamuneas, Theofanis P, 2000. "Intertemporal Output and Employment Effects of Public Infrastructure Capital: Evidence from 12 OECD Economics," Economic Journal, Royal Economic Society, vol. 110(465), pages 687-712, July.
  4. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  5. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  6. Douglas Holtz-Eakin & Amy Ellen Schwartz, 1994. "Infrastructure in a Structural Model of Economic Growth," NBER Working Papers 4824, National Bureau of Economic Research, Inc.
  7. Pritchett, Lant, 1996. "Where has all the education gone?," Policy Research Working Paper Series 1581, The World Bank.
  8. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
  9. Badi H. Baltagi & Chihwa Kao, 2000. "Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey," Center for Policy Research Working Papers 16, Center for Policy Research, Maxwell School, Syracuse University.
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Cited by:
  1. Torrisi, Gianpiero, 2009. "Infrastructures and economic performance: a critical comparison across four approaches," MPRA Paper 18688, University Library of Munich, Germany.
  2. Gutierrez, Pedro J. & Marroquin, Eduardo F., 2006. "A Characterization of the Argentinian production sector prior to the 1998 crisis," The Journal of Socio-Economics, Elsevier, vol. 35(4), pages 691-709, August.
  3. Bayraktar, Nihal & Moreira, Emmanuel Pinto, 2007. "The composition of public expenditure and growth : a small-scale intertemporal model for low-income countries," Policy Research Working Paper Series 4430, The World Bank.

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