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Infrastructure Shortage: A Gap Approach

We propose a method to estimate both whether there is an overall infrastructure shortage and the optimal share of infrastructure in gross fixed capital formation (GFCF). This is based on a two-gap model and linear programming, and is illustrated with the case of Mexico (1950-1985). The results show that Mexico appears to have started with an appropriate share of core infrastructures in GFCF. Then, there would have been an infrastructure shortage up until 1964, and an infrastructure surplus there after. It also shows that the optimal coefficient of infrastructure investment-to-optimal output would have been around 4.5 per cent, and that each unit of infrastructure would have optimally supported over three units of GFCF. A macroeconomic shortage do es not however mean that there would be a shortage everywhere, but it does imply that the economy as a whole would be in a net state of shortage. So our method may at least provide an appropriate context within which more focused analysis may be attempted.

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File URL: http://www.econ.qmul.ac.uk/papers/doc/wp404.pdf
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Paper provided by Queen Mary University of London, School of Economics and Finance in its series Working Papers with number 404.

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Date of creation: May 1999
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Handle: RePEc:qmw:qmwecw:wp404
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  1. Edmar Bacha, 1989. "A three gap model of foreign transfers and GPD growth rate in developing countries," Textos para discussão 221, Department of Economics PUC-Rio (Brazil).
  2. Evans, Paul & Karras, Georgios, 1994. "Is government capital productive? Evidence from a panel of seven countries," Journal of Macroeconomics, Elsevier, vol. 16(2), pages 271-279.
  3. Edmar Bacha, 1982. "Growth with limited supplies of foreign exchanges: a reappraisal of the two-gap model," Textos para discussão 26, Department of Economics PUC-Rio (Brazil).
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