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Investing in Public Infrastructure; Roads or Schools?


  • Manoj Atolia
  • Bin Grace Li
  • Ricardo Marto
  • Giovanni Melina


Why do governments in developing economies invest in roads and not enough in schools? In the presence of distortionary taxation and debt aversion, the different pace at which roads and schools contribute to economic growth turns out to be central to this decision. Specifically, while costs are front-loaded for both types of investment, the growth benefits of schools accrue with a delay. To put things in perspective, with a “big push,” even assuming a large (15 percent) return differential in favor of schools, the government would still limit the fraction of the investment scale-up going to schools to about a half. Besides debt aversion, political myopia also turns out to be a crucial determinant of public investment composition. A “big push,” by accelerating growth outcomes, mitigates myopia—but at the expense of greater risks to fiscal and debt sustainability. Tied concessional financing and grants can potentially mitigate the adverse effects of both debt aversion and political myopia.

Suggested Citation

  • Manoj Atolia & Bin Grace Li & Ricardo Marto & Giovanni Melina, 2017. "Investing in Public Infrastructure; Roads or Schools?," IMF Working Papers 17/105, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:17/105

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    References listed on IDEAS

    1. Nkunde Mwase, 2006. "An Empirical Investigation of the Exchange Rate Pass-Through to Inflation in Tanzania," IMF Working Papers 06/150, International Monetary Fund.
    2. Régis Barnichon & Shanaka J. Peiris, 2008. "Sources of Inflation in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 17(5), pages 729-746, November.
    3. Jonathan McCarthy, 2007. "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 511-537, Fall.
    4. Darrel Cohen & Kevin Hassett & R. Glenn Hubbard, 1999. "Inflation and the User Cost of Capital: Does Inflation Still Matter?," NBER Chapters,in: The Costs and Benefits of Price Stability, pages 199-234 National Bureau of Economic Research, Inc.
    5. Alexei P Kireyev, 2001. "Financial Reforms in Sudan; Streamlining Bank Intermediation," IMF Working Papers 01/53, International Monetary Fund.
    6. Nikolay Gueorguiev, 2003. "Exchange Rate Pass-Through in Romania," IMF Working Papers 03/130, International Monetary Fund.
    7. Marco Rossi & Daniel Leigh, 2002. "Exchange Rate Pass-Through in Turkey," IMF Working Papers 02/204, International Monetary Fund.
    8. Rodolphe Blavy, 2004. "Inflation and Monetary Pass-Through in Guinea," IMF Working Papers 04/223, International Monetary Fund.
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