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How inadequate provision of public infrastructure and services affects private investment

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Author Info
Reinikka, Ritva
Svensson, Jakob

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Abstract

Lack of private investment is a serious policy problem in many developing countries, especially in Africa. Despite recent structural reform and stabilization, the investment response to date has been mixed, even among the strongest reformers. The role of poor infrastructure and deficient public services has received little attention in the economic literature, where the effect of public spending and investment on growth is shown to be at best ambiguous. The authors use unique microeconomic evidence to show the effects of poor infrastructure services on private investment in Uganda. They find that poor public capital, proxied by an unreliable and inadequate power supply, significantly reduces productive private investment. Firms ca substitute for inadequate provision of public capital by investing in it themselves. This comes at a cost, however: the installation of less productive capital. These results have clear policy implications. Although macroeconomic reforms and stabilization are necessary conditions for sustained growth and private investment, without an accompanying improvement in the public sector's performance, the private supply response to macroeconomic policy reform is likely to remain limited.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2262.

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Date of creation: 31 Dec 1999
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Handle: RePEc:wbk:wbrwps:2262

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Keywords: Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; International Terrorism&Counterterrorism; ICT Policy and Strategies;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  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)
    Other versions:
  2. Bigsten, Arne, et al, 1999. " Investment in Africa's Manufacturing Sector: A Four Country Panel Data Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 489-512, November. [Downloadable!] (restricted)
    Other versions:
  3. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 313-344, April. [Downloadable!] (restricted)
  4. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Reinikka, Ritva & Svensson, Jakob, 1999. "Confronting competition - investment response and constraints in Uganda," Policy Research Working Paper Series 2242, The World Bank. [Downloadable!]
  6. Catherine A. Pattillo, 1997. "Investment, Uncertainty, and Irreversibility in Ghana," IMF Working Papers 97/169, International Monetary Fund.
  7. Paul Collier & Jan Willem Gunning, 1999. "Explaining African Economic Performance," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 64-111, March. [Downloadable!] (restricted)
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  8. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December. [Downloadable!] (restricted)
  9. Easterly, William, 1997. "The ghost of financing gap : how the Harrod-Domar growth model still haunts development economics," Policy Research Working Paper Series 1807, The World Bank. [Downloadable!]
  10. Ablo, Emmanuel & Reinikka, Ritva, 1998. "Do budgets really matter? - evidence from public spending on education and health in Uganda," Policy Research Working Paper Series 1926, The World Bank. [Downloadable!]
  11. Tybout, James R, 1983. "Credit Rationing and Investment Behavior in a Developing Country," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 598-607, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Calderon, Cesar & Serven, Luis, 2008. "Infrastructure and economic development in Sub-Saharan Africa," Policy Research Working Paper Series 4712, The World Bank. [Downloadable!]
  2. Anthony Bende-Nabende & Jim Slater, 2003. "Private capital formation: Short- and long-run crowding-in (out) effects in ASEAN, 1971-99," Economics Bulletin, Economics Bulletin, vol. 3(28), pages 1-16. [Downloadable!]
  3. Pargal, Sheoli, 2003. "Regulation and private sector investment in infrastructure - evidence from Latin America," Policy Research Working Paper Series 3037, The World Bank. [Downloadable!]
  4. Leonce Ndikumana, 2008. "Can macroeconomic policy stimulate private investment in South Africa? New insights from aggregate and manufacturing sector-level evidence," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(7), pages 869-887. [Downloadable!]
  5. Léonce Ndikumana, 2005. "Can Macroeconomic Policy Stimulate Private Investment in South Africa? New Insights from Aggregate and Manufacturing Sector-Level Evidence," Working Papers wp106, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
  6. Bigsten, Arne & Levin, Jorgen & Persson, Hakan, 2001. "Debt Relief and Growth: A study of Zambia and Tanzania," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  7. Bogetic, Zeljko & Fedderke, Johannes W., 2006. "Forecasting investment needs in South Africa's electricity and telecommunications sectors," Policy Research Working Paper Series 3829, The World Bank. [Downloadable!]
  8. Levin, Jorgen, 2001. "Taxation in Tanzania," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  9. Esther K. Ishengoma & Robert Kappel, 2008. "Business Constraints and Growth Potential of Micro and Small Manufacturing Enterprises in Uganda," GIGA Working Paper Series 78, GIGA German Institute of Global and Area Studies. [Downloadable!]
  10. Causa, Orsetta & Cohen, Daniel, 2006. "Industrial Productivity in 51 Countries, Rich and Poor," CEPR Discussion Papers 5549, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Léonce Ndikumana, 2005. "Can macroeconomic policy stimulate private investment in South Africa? New insights from aggregate and manufacturing sector-level evidence," Working Papers 2005-14, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
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