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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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  • Felix K. Rioja, 2003. "The Penalties of Inefficient Infrastructure," Review of Development Economics, Wiley Blackwell, vol. 7(1), pages 127-137, February.
  • Handle: RePEc:bla:rdevec:v:7:y:2003:i:1:p:127-137
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    Cited by:

    1. Yogo, Thierry Urbain & Mallaye, Douzounet, 2013. "Foreign Aid and Mobilization of Growth Factors in Sub-Saharan Africa," WIDER Working Paper Series 103, World Institute for Development Economic Research (UNU-WIDER).
    2. Antonio Estache, 2010. "A survey of impact evaluations of infrastructure projects, programs and policies," Working Papers ECARES 2010_005, ULB -- Universite Libre de Bruxelles.
    3. Bernadette Biatour & Chantal Kegels & Jan van der Linden & Dirk Verwerft, 2017. "Working Paper 01-17 - Public Investment in Belgium - Current State and Economic Impact," Working Papers 1701, Federal Planning Bureau, Belgium.
    4. 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, pages 57-79.
    5. Manfred Wiebelt & Rainer Schweickert & Clemens Breisinger & Marcus Böhme, 2011. "Oil revenues for public investment in Africa: targeting urban or rural areas?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 745-770.
    6. Rosa Capolupo, "undated". "The New Growth Theoris and their Empirics," Working Papers 2005_4, Business School - Economics, University of Glasgow.
    7. 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.
    8. Agénor, Pierre-Richard & Bayraktar, Nihal & El Aynaoui, Karim, 2008. "Roads out of poverty? Assessing the links between aid, public investment, growth, and poverty reduction," Journal of Development Economics, Elsevier, pages 277-295.
    9. Anu Tokila & Mika Haapanen, 2012. "Evaluation of Deadweight Spending in Regional Enterprise Financing," Regional Studies, Taylor & Francis Journals, pages 185-201.
    10. Calderon, Cesar & Serven, Luis, 2014. "Infrastructure, growth, and inequality : an overview," Policy Research Working Paper Series 7034, The World Bank.
    11. 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.
    12. Julia Korosteleva & Colin Lawson, 2010. "The Belarusian case of transition: whither financial repression?," Post-Communist Economies, Taylor & Francis Journals, pages 33-53.
    13. 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.
    14. 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.
    15. Anu TOKILA & Mika HAAPANEN, "undated". "Evaluation of Deadweight Spending in Regional Enterprise Financing," EcoMod2009 21500088, EcoMod.
    16. 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.
    17. Barbara Kotschwar, 2012. "Transportation and Communication Infrastructure in Latin America: Lessons from Asia," Working Paper Series WP12-6, Peterson Institute for International Economics.

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