Abstract
We examine the evolution of infrastructure, and the impact of infrastructure investment, in middle-income countries (MICs). We document how different types of infrastructure stocks, as well as infrastructure investment, vary with the level of development and growth performance. We then use the two-stage approach of Corsetti, Meier, and Muller (2012) to identify exogenous public investment shocks and investigate the macroeconomic impact of these shocks. We find that the provision of infrastructure varies across development stages; there is a focus on basic infrastructure, such as transport, water, and sanitation, during early stages, and an emphasis on “advanced” infrastructure, such as power and especially information and communication technology, in later stages. Better-performing MICs tend to invest more in infrastructure. They also have more information and communication technology infrastructure. Finally, we find a more significant and sustained impact of exogenous public investment shocks on output in MICs than in low-income countries.
Highlights
The provision of infrastructure has long been considered a crucial element of economic development— a widespread view in the academic setting and in policy circles (Calderón and Servén 2008)
We classify all country-year observations in our sample into three income groups: low-income countries (LICs), lower-middle-income countries (LMICs), and upper-middle-income countries (UMICs)
While the bivariate approach used in the previous section can be informative about the empirical regularities regarding infrastructure provision and infrastructure investment across country income groups and growth performance, it does not take into account the role of other factors affecting infrastructure provision and investment, nor does it make any formal inferences about the observed empirical relationships
Summary
The provision of infrastructure has long been considered a crucial element of economic development— a widespread view in the academic setting and in policy circles (Calderón and Servén 2008). Middle-income countries (MICs) often face challenges in sustaining growth, and could potentially benefit from increased infrastructure investment As they develop, countries often experience substantial slowdowns in growth when they reach middle-income status, preventing many of them from making a quick transition to high-income status.1 Eichengreen, Park, and Shin (2014) find that growth decelerations usually occur at per capita income levels of about $10,000–$11,000 and again at $15,000–$16,000 a year in 2005 international purchasing power parity (PPP) dollars. Investment efficiency and absorptive capacity could be higher in MICs because of stronger institutions, resulting in better selection and execution of infrastructure projects To address these questions, this paper presents stylized facts on the provision of infrastructure across the different country income groups and the different levels of performance within these groups, where the latter is measured in terms of growth in gross domestic product (GDP) per capita.
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