Infrastructure and growth in Africa

The goal of the paper is to provide a comprehensive assessment of the impact of infrastructure development on growth in African countries. Based on econometric estimates for a sample of 136 countries from 1960-2005, the authors evaluate the impact on per capita growth of faster accumulation of infrastructure stocks and of enhancement in the quality of infrastructure services for 39 African countries in three key infrastructure sectors: telecommunications, electricity, and roads. Using an econometric technique suitable for dynamic panel data models and likely endogenous regressors, the authors find that infrastructure stocks and service quality boost economic growth. The growth payoff of reaching the infrastructure development of the African leader (Mauritius) is 1.1 percent of GDP per year in North Africa and 2.3 percent in Sub-Saharan Africa, with most of the contribution coming from more, rather than better, infrastructure. Across Africa, infrastructure contributed 99 basis points to per capita economic growth, versus 68 points for other structural policies. Most of the contribution came from increases in stocks (89 basis points), versus quality improvements (10 basis points). The findings show that growth is positively affected by the volume of infrastructure stocks and the quality of infrastructure services; simulations show that our empirical findings are significant statistically and economically. Identifying areas of opportunity to generate productivity growth, the authors find that African countries are likely to gain more from larger stocks of infrastructure than from enhancements in the quality of existing infrastructure. The payoffs are largest for telephone density, electricity-generating capacity, road-network length, and road quality.Transport Economics Policy&Planning,Infrastructure Economics,E-Business,Private Participation in Infrastructure,Non Bank Financial Institutions

Trade and economic growth : evidence on the role of complementarities for CAFTA-DR countries

This paper examines the effects of trade on growth among Central America-Dominican Republic Free Trade Agreement countries. To accomplish this task, the authors collected a panel data set of 136 countries over 1960-2010, and estimated cross-country growth regressions using an econometric methodology that accounts for unobserved effects and the likely endogeneity of the growth determinants. Following recent empirical efforts, they tested whether the impact of trade openness on growth may be more effective after surpassing a"minimum threshold"in specific areas closely related to economic development. The analysis finds not only that there is a robust causal link from trade to growth, but also that the growth benefits from trade are larger in countries with higher levels of education and innovation, deeper financial markets, a stronger institutional framework, more developed infrastructure networks, a high level of integration with world capital markets, and less stringent economic regulations. On average, rising trade has benefited growth in Central America-Dominican Republic Free Trade Agreement countries. However, the lack of progress in structural reforms has not allowed these countries to maximize the potential benefits from trade.Economic Theory&Research,Free Trade,Achieving Shared Growth,Emerging Markets,Trade Policy

Does higher openness cause more real exchange rate volatility ?

The"New Open Economy Macroeconomics"argues that: (a) non-monetary factors have gained importance in explaining exchange rate volatility, and (b) trade and financial openness may have a potential role of mitigating and/or amplifying real and nominal shocks to real exchange rates. The goal of the present paper is to examine the ability of trade and financial openness to exacerbate or mitigate real exchange rate volatility. The authors collected information on the real effective exchange rate, its fundamentals, and (outcome and policy measures of) trade and financial openness for a sample of industrial and developing countries for the period 1975-2005. Using instrumental variables techniques, the analysis finds that: (a) High real exchange rate volatility is the result of highly volatile productivity shocks, and sharp oscillations in monetary and fiscal policy shocks. (b) Countries more integrated with international markets of goods and services tend to display more stable real exchange rate fluctuations. (c) Financial openness seems to amplify the fluctuations in real exchange rates. (d) The composition of trade and capital flows plays a role in explaining the smoothing properties of trade and financial openness. Although the former is mainly driven by manufacturing trade, the latter depends on the share of debt (and equity) in total foreign liabilities. (e) Financial openness would attenuate (magnify) real exchange rate volatility, the greater the share of equity (debt) in foreign liabilities. (f) The composition of flows also matters for explaining the smoothing properties of trade and financial openness in periods of currency crisis.Emerging Markets,Debt Markets,Currencies and Exchange Rates,Economic Theory&Research,Economic Conditions and Volatility

Sudden stops : are global and local investors alike ?

The main goal of this paper is to characterize the determinants of sudden stops caused by domestic vis-a-vis foreign residents. Are the decisions of domestic investors to invest abroad or of foreign investors to cut off funds from the domestic economy governed by the same set of determinants? Given the distribution of different types of sudden stop episodes over time and its different macroeconomic consequences, the authors argue that the determinants may not be alike. Using an effective sample of 82 countries with annual information over the period 1970-2007, the analysis finds that global investors are less likely to stop bringing their capital when their economy is growing and the world interest rate is lower. Domestic agents are more willing to invest abroad if the macroeconomic performance of the domestic economy is poor (high inflation), the financial system is weak, and there are high external savings (current account surpluses). Increasing financial openness makes the domestic country more vulnerable to sudden stops caused by either local or global investors. Finally, countries with higher shares of foreign direct investment are less prone to inflow-driven sudden stops, whereas the opposite holds for outflow-driven sudden stops.Debt Markets,Emerging Markets,Currencies and Exchange Rates,Economic Theory&Research,Access to Finance

Infrastructure in Latin America

An adequate supply of infrastructure services has long been viewed by both academics and policy makers as a key ingredient for economic development. Over the past quarter-century, the retrenchment of Latin America's public sector from its dominant position in the provision of infrastructure, and the opening up of these industries to private participation, have renewed the debate on the role of infrastructure in the region's development. The focus of this paper is three-fold. First, it documents, in a comparative cross-regional perspective, the trends in Latin America's infrastructure development, as reflected in the quantity and quality of infrastructure services and the universality of their access. Overall, this suggests the emergence of an infrastructure gap vis-a-vis other industrial and developing regions. Second, it provides an empirical assessment of the contribution of infrastructure development to growth across Latin America. Third, it examines the trends in the financing of infrastructure investment -- documenting the changing roles of the public and private sectors -- and analyzes how they have been shaped by macroeconomic policy constraints.

Infrastructure and economic development in Sub-Saharan Africa

An adequate supply of infrastructure services has long been viewed by both academics and policy makers as a key ingredient for economic development. Sub-Saharan Africa ranks consistently at the bottom of all developing regions in terms of infrastructure performance, and an increasing number of observers point to deficient infrastructure as a major obstacle for growth and poverty reduction across the region. This paper offers an empirical assessment of the impact ofinfrastructure development on growth and inequality, with a focus on Sub-Saharan Africa. The paper uses a comparative cross-regional perspective to place Africa's experience in the international context. Drawing from an updated data set of infrastructure quantity and quality indicators covering more than 100 countries and spanning the years 1960-2005, the paper estimates empirical growth and inequality equations including a standard set of control variables augmented by infrastructure quantity and quality measures, and controlling for the potential endogeneity of the latter. The estimates illustrate the potential contribution of infrastructure development to growth and equity across Africa.Transport Economics Policy&Planning,Infrastructure Economics,Public Sector Economics&Finance,Banks&Banking Reform,Economic Theory&Research

Trends in infrastructure in Latin America, 1980-2001

There is widespread concern across Latin America that the provision of infrastructure services has suffered as a consequence of the retrenchment of the public sector and the insufficient response of the private sector to the opening up of infrastructure industries to private participation in most countries. The authors document the recent trends in infrastructure stocks and infrastructure investment in major Latin American economies. Using an updated dataset constructed for this task, the authors describe the evolution of the quantity and quality of infrastructure assets-power, transport, and telecommunications-as well as the investment expenditures of the public and private sectors. They find that Latin America lags behind the international norm in terms of infrastructure quantity and quality, and there is little evidence that the gap may be closing-except in the telecommunications sector. Furthermore, overall infrastructure investment has fallen, as a combined result of the retrenchment of public investment and the limited response of the private sector, which has been mostly confined to the telecommunications industry. However, there is considerable disparity across countries. On the whole the data show that the countriesmost successful in attracting large volumes of private investment (Bolivia, Chile, and Colombia) are precisely those where public investment has remained high.Public Sector Economics&Finance,Economic Theory&Research,Environmental Economics&Policies,Decentralization,Agricultural Research,Public Sector Economics&Finance,Banks&Banking Reform,Economic Theory&Research,Urban Services to the Poor,Environmental Economics&Policies

The effects of infrastructure development on growth and income distribution

The authors provide an empirical evaluation of the impact of infrastructure development on economic growth and income distribution using a large panel data set encompassing over 100 countries and spanning the years 1960-2000. The empirical strategy involves the estimation of simple equations for GDP growth and conventional inequality measures, augmented to include, among the regressors, infrastructure quantity and quality indicators, in addition to standard controls. To account for the potential endogeneity of infrastructure (as well as that of other regressors), the authors use a variety of generalized-method-of-moments (GMM) estimators based on both internal and external instruments and report results using both disaggregated and synthetic measures of infrastructure quantity and quality. The two robust results are: (1) growth is positively affected by the stock of infrastructure assets, and (2) income inequality declines with higher infrastructure quantity and quality. A variety of specification tests suggests that these results do capture the causal impact of the exogenous component of infrastructure quantity and quality on growth and inequality. These two results combined suggest that infrastructure development can be highly effective to combat poverty. Furthermore, illustrative simulations for Latin American countries suggest that these impacts are economically quite significant, and highlight the growth acceleration and inequality reduction that would result from increased availability, and quality of infrastructure.Decentralization,Public Sector Economics&Finance,Banks&Banking Reform,Urban Services to the Poor,Urban Services to the Poor,Public Sector Economics&Finance,Banks&Banking Reform,Inequality,Urban Services to the Poor,Urban Services to the Poor

Zooming in : from aggregate volatility to income distribution

In contrast with a growing literature on the drivers of aggregate volatility in developing countries, its consequences in terms of individual incomes have received less attention. This paper looks at the impact of cyclical output fluctuations and extreme output events (crises) on unemployment, poverty, and inequality. The authors find robust evidence that aggregate volatility has a regressive, asymmetric, and non linear impact, as reflected in the strong influence of extreme output drops. The findings show that, in addition to the mitigating role of personal wealth, public expenditure and labor protection exert a similar benign effect. These findings are in line with the income substitutions view of social safety nets, and cast a new light on the value of social programs and labor market regulation in crisis prone developing countries.Economic Conditions and Volatility,Emerging Markets,Economic Theory&Research,Inequality,