Financing Road Networks in Developing Countries

Abstract

During the 1960s and 1970s, developing countries received enormous loans from multilateral credit organizations and funds from developed countries to finance highway projects, mainly the paving of highways and the opening of natural surface roads to mobilize production. Traditionally, each loan required a cost-benefit analysis showing that the benefits of the project exceeded its costs in terms of vehicle operating expenditures, time savings, accident reduction, and so forth. Unfortunately, many projects have been used as political drivers, and once the projects were initiated, not enough funds were allocated for maintenance and reconstruction. As a result, the roads have deteriorated; thus transportation costs increased and ultimately the theoretical benefits of the original project were negated. In this paper, the author explains that just as important as the ex ante estimation of benefits of a project is that governments guarantee the resources needed to maintain and conserve the roads built and thereby close the virtuous circle between the economic benefits foreseen in the ex ante evaluation, the use of the highway, and its financing through different mechanisms. Language: en