Infrastructure and Structural Change in the Horn of Africa

Access to infrastructure supports economic development through both capital accumulation andstructural transformation. This paper investigates the links between investments in electricity, Internet, and roadinfrastructure, in isolation and bundled, and economic development in the Horn of Africa, a region that includescountries with different levels of infrastructure and economic development. Using data on the expansion of theroad, electricity, and Internet networks over the past two decades, it provides reduced-form estimates of the impactsof infrastructure investments on the sectoral composition of employment. Bundled infrastructure investments causedifferent patterns of structural transformation than isolated infrastructure investments. The impact of bundledroad and electricity investments on reducing the sectoral employment share in agriculture is found to be 2.5 timeslarger than the impact of roads alone. The paper then uses a spatial general equilibrium model to quantify the impacts offuture regional transport investments, bundled with electricity and trade facilitation measures, on economicdevelopment in countries in the Horn of Africa.