The economics of infrastructure in a globalized world: Issues, lessons and future challenges

Abstract

Although infrastructure is widely recognized as a key ingredient in a country's economic success, many issues surrounding infrastructure spending are not well understood. This paper explores six themes: the returns to infrastructure; the role of the private sector; the evaluation and delivery of infrastructure in practice; the nature of network industries, pricing and regulation; political economy considerations of infrastructure provision; and infrastructure in developing countries. This paper aims to provide insights into many of these questions, drawing on the existing literature.

The state and its infrastructure system

“…The first is through raising productivity and lowering production costs. The second is through having a disproportionate effect on poverty reduction by raising incomes, increasing returns on assets, aiding the developing of human capital, assisting the realisation of scale and enabling the spread of knowledge (Henckel and McKibbin 2017). Sawada (2015) notes that for less-developed states the provision of infrastructure is core to longer-term improvements in welfare to attract international investment.…”

Deriving Macroeconomic Benefits from Public�Private Partnerships in Developing Asia

“…Back then, rising evidence of inefficient spending, poorly managed state-owned enterprises, and widespread fiscal and debt crises called for a new model of economic development led by the private sector and market liberalization. Henckel and McKibbin (2010) note that the private sector's involvement in infrastructure, either exclusively or through PPPs, is motivated by inefficiencies observed in public projects, such as cost blowouts, planning and construction delays, safety problems, and a lack of innovation and technological advancement. Figure 1 shows the gradual rise of PPP transactions in developing regions since the mid-1980s.…”

“…Theoretical studies on public procurement show how PPPs come out as a desirable option for the delivery of infrastructure and related services relative to other modality. PPPs make optimal use of the private sector's skills, technology, and innovation that are needed throughout a project's life, especially when fiscal resources are tight (Iossa and Martimort 2015, European PPP Expertise Centre 2015, de Bettignies and Ross 2004, Davies andEustice 2005, Henckel andMcKibbin 2010). Infrastructure projects done by PPPs are more likely to reach the desired level of performance.…”

“…Studies argue that PPPs guarantee value for money-broadly defined as the ability to improve the delivery of benefits relative to the associated costs across a range of alternatives. Bundling PPPs help reduce a project's life-cycle costs (Davies and Eustice 2005, Henckel and McKibbin 2010, Iossa and Martimort 2015. Bundling also incentivizes private partners to design and build infrastructure at lower overall long-term costs, reduce, and hand back well-maintained assets to the government at the end of the contract.…”

On the Effects of Infrastructure Investment on Economic Performance in Ontario

“…For surveys of the relevant conceptual and econometric issue, for example, Gramlich (1994), Romp and de Haan (2007), and Pereira and Andraz (2013). For general discussions of the economics of infrastructure, development and policy in a globalized world see, for example, Henckel and McKibbin (2017), Klein (2017) and Regan (2017).…”