The boundaries of this interval define reasonably robust lower and upper bounds for the output elasticity with respect to infrastructure in developing countries. The lower bound of the elasticity suggests that an increase of 8.7% in the stock of infrastructure is required to add a percentage point to growth in the MENA region. This is the more likely scenario in high-income MENA, comprised of the GCC economies and some upper middle-income MENA countries, since the growth impact of an additional unit of infrastructure investment tends to be smaller in the more developed countries. With the upper bound elasticity, the required increase in infrastructure stock is just 3.1%.

# **<mark>6. Policy implications and concluding remarks</mark>**

Infrastructure investment has the potential to create jobs quickly, while providing a foundation for future growth. This is especially important in the oil importing countries, where the infrastructure gap is large and employment needs are growing. However, it is also likely to be most difficult in these countries because of strained finances. Going forward, government decisions on what types of spending to expand and what to downsize in order to achieve balanced budgets will have important implications for jobs. In designing country specific solutions, governments will have to take on predictable challenges: the governance of job creation, the proper targeting and fiscal costs assessment of subsidies needed to create jobs, the design and fiscal costs of the (re)training programs needed and the expectations on the job creation effects of infrastructure.

# _The governance challenge_

Prudent infrastructure development will be critical for short and long term growth and job creation because the greatest risk to using infrastructure as part of an employment and growth strategy in MENA countries is poor governance. A recent report on investment in MENA (World Bank, 2011) shows that in economies with weak rule of law there is no evidence that public investment stimulates private investment and growth. In contrast, in countries with an adequate level of property rights protection, accountability and legal institutions, public investment is strongly linked to growth. In addition, good rule of law helps attract private investment and countries with good rule of law show higher levels of investment efficiency.

Not all jobs are equal in terms of skills and not all infrastructure investments are equal in terms of ability to create jobs of different skills. This means that investments in infrastructure will need to be prioritized based on the employment and infrastructure needs and opportunities of the country. For example, road and bridge construction projects will have direct impact on creation of relatively low-skilled jobs. These types of projects will be especially effective in addressing job-related concerns in countries where there is a large pool of relatively unskilled and unemployed nationals. This is the case in most MENA countries where the majority of the unemployed do not have tertiary education. By contrast, projects in transport and communication services have large indirect effects, and therefore the ability to create a diverse set of jobs for workers with different skill levels. These projects will appeal to policy makers in countries where the unemployed have the ability to acquire specialized skills relatively quickly.

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