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Impact Of Infrastructure Spending In Sub-Saharan Africa: A Cge Modeling Approach

  • Antonio Estache


    (World Bank and, the European Centre for Advanced Research in Economics and Statistics at the Free University of Brussels)

  • Jean-François Perrault


    (GREDI, Faculte d'administration, Université de Sherbrooke)

  • Luc Savard


    (GREDI, Faculte d'administration, Université de Sherbrooke)

In this paper we construct an archetype CGE model and apply it to six sub-Saharan African countries to explore the impact of scaling up infrastructure in African countries. As part of the debate on the importance of scaling up infrastructure to stimulate growth and provide a push to African economies, some analysts have raised concerns on providing massive financing for the construction of these infrastructures as the process can create major distortion in the economies and have a negative impact by creating Dutch disease symptoms (Adam and Bevan 2006). This study aims to provide some insight into this debate. It draws from the infrastructure productivity literature to postulate positive productive externalities of new infrastructure and Fay and Yepes (2003) for operating cost associated with new infrastructure. We compare various infrastructure investment funded with different fiscal tools. These investments scenarios are compared to non productive investment that can be interpreted as a business as usual scenario. Our results show that increase in infrastructure investment does produce slight Dutch disease effects but the negative impacts are strongly dependent on the type of investments performed and type of financing scheme used. Moreover, the growth effects we introduced contribute to attenuate the negative effects.

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Paper provided by Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke in its series Cahiers de recherche with number 08-03.

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Length: 40 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:shr:wpaper:08-03
Contact details of provider: Postal: Sherbrooke, Québec, J1K 2R1
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  1. Anderson, James E. & Martin, Will, 1998. "Evaluating public expenditures when governments must rely on distortionary taxation," Policy Research Working Paper Series 1981, The World Bank.
  2. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  3. Jim Davies, 2003. "Empirical Evidence on Human Capital Externalities," University of Western Ontario, Economic Policy Research Institute Working Papers 20035, University of Western Ontario, Economic Policy Research Institute.
  4. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
  5. Jung, Hong-Sang & Thorbecke, Erik, 2003. "The impact of public education expenditure on human capital, growth, and poverty in Tanzania and Zambia: a general equilibrium approach," Journal of Policy Modeling, Elsevier, vol. 25(8), pages 701-725, November.
  6. Peter J. Klenow & Mark Bils, 2000. "Does Schooling Cause Growth?," American Economic Review, American Economic Association, vol. 90(5), pages 1160-1183, December.
  7. Terry McKinley, 2005. "Why is ?The Dutch disease? always a disease? the macroeconomic consequences of scaling up ODA," Working Papers 10, International Policy Centre for Inclusive Growth.
  8. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  9. Christopher S. Adam & David L. Bevan, 2006. "Aid and the Supply Side: Public Investment, Export Performance, and Dutch Disease in Low-Income Countries," World Bank Economic Review, World Bank Group, vol. 20(2), pages 261-290.
  10. Fougere, Maxime & Merette, Marcel, 1999. "Population ageing and economic growth in seven OECD countries," Economic Modelling, Elsevier, vol. 16(3), pages 411-427, August.
  11. Alicia H. Munnell, 1990. "Why has productivity growth declined? Productivity and public investment," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-22.
  12. Bajo-Rubio, Oscar & Sosvilla-Rivero, Simon, 1993. "Does public capital affect private sector performance? : An analysis of the Spanish case, 1964-1988," Economic Modelling, Elsevier, vol. 10(3), pages 179-185, July.
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