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feasible strategies for poverty alleviation, competition for scarce government resources could negatively impact general infrastructure expenditures in countries committed to poverty alleviation.

## **111. CONCEPrUAL FRAmEwoRK AND** MODEL **SPECIFICATION**

The analytical framework is a four-sector general equilibrium model, consisting of urban households, urban producers, rural households and a single government. (See Appendix A for details of the model.) Total population of the economy is fixed, but households may migrate between the rural and urban sectors in response to perceived differences in utility levels. The model is solved to determine the optimal level and mix of public expenditures on infrastructure, human resources and consumption public goods, and the optimal mix of taxes on wages, domestic output and property. The model can be used for simulating the impacts of changes in various policy variables. Thus, simulations can be used to explore the influence of: (1) internal features of the economy, (2) the level and mix of external funding, and (3) the specified goal(s) of the government. The model implies a set of reduced form equations for several forms of government expenditures and taxes. In this paper, however, we primarily use the model's reduced form solution for infrastructure spending as a departure point for the empirical analysis, which is at the heart of this paper.

The reduced-form equation for infrastructure expenditures takes the following form: I = I(V, E, 0) where V is a vector of characteristics defining the economy, E is the level and composition of external assistance and 0 reflects government objectives. Some of the characteristics in V are dictated by the formal structure of the theoretical model; others are additional control variables that have been hypothesized in the literature to influence the level of total government expenditure or the ability of the government to collect taxes. The vector V also incorporates variables capturing differences in structural features between countries. The vector E includes the net flow of foreign assistance and variables reflecting the proportion of foreign assistance accounted for by official flows, commercial bank flows, and direct foreign investment. All governments are assumed to emphasize growth, but governments are viewed as differing in their commitment to alleviating poverty. Thus, the vector 0 is a single variable reflecting the government's commitment to poverty alleviation. Against this background, we now turn to the description of the categories of variables considered along with their hypothesized influence on infrastructure expenditures.

# A. **Dependent Variable: Per Capita Infrastructure Spending**

The dependent variable is per capita govemment expenditures on transportation and communications measured in constant 1980 US dollars.' The determinants of _central_ government expenditures (BTACCAPK) and _consolidated_ government expenditures (CTACCAPK) are estimated separately.<sup>2</sup> The data source for central and consolidated govemment expenditures is the _Government Finance Statistics Yearbook_ (IMF, various years)<sup>3</sup> . Conversion to per capita constant 1980 US dollars is accomplished using data from the _World Development Report 1991: Supplementary Data_ (World Bank, 1991).