Along side the growing body of evidence substantiating the importance of investment in infrastructure for development (Heller and Diamond, 1990; Kessides, 1993a,b; World Bank, 1994) is an accumulation of evidence that infrastructure investment in LDCs is suboptimal. Cardoso (1993), using panel data from six Latin American Countries for the period 1970-85, partially attributes the decline in investment in Latin America to the decline in complementary public investment as countries adjusted to the debt crisis. Canning and Fay (1993) find that rates of return to transportation infrastructure may exceed 200 percent in poorer, newly industrializing countries and are around 50 percent in less developed agricultural economies, suggesting that transportation infrastructure is seriously undercapitalized.

In view of the direct impact of infrastructure investment on economic growth, the importance of public infrastructure investment for stimulating private investment and the mounting evidence of underinvestment in public infrastructure, especially in the wake of the debt crisis, the question of what determines the level of public investment in infrastructure naturally arises.

# II. **THE OBJECTIVES OF THE ANALYSIS**

The primary objective of this study is to isolate the factors influencing the level of public investment in infrastructure. To this end, we analyzed pooled cross-national and timeseries data to assess the relative influence of internal features and external assistance on observed expenditures on infrastructure. The analysis covers 27 low-income and middleincome economies over the 1980-1986 period. Of particular relevance to Bank operations is the estimated influence of the level of foreign assistance and altemative forms of foreign assistance, official development assistance, commercial bank lending, and direct foreign investment, on infrastructure investments after properly controlling for intemal differences in these economies.

The analysis also explores the influence of government commitment to poverty alleviation on infrastructure investments. Three principle means exist to reduce poverty: promoting economic opportunities for the poor, providing social services to the poor and providing transfers to the poor (World Bank, 1990b). The primary role of transfers is to put a safety net below living standards, ensuring that the poor cannot fall below a threshold standard of living. However, this approach must be viewed as a stopgap measure; it does little to increase individuals' opportunities to rise above poverty once transfers cease. The provision of social services, especially health and education, in contrast, increases individuals' opportunities to rise above poverty by augmenting their human capital. Similarly, the promotion of economic opportunities for the poor directly enhances individuals' opportunities to avoid poverty, but this time by augmenting their access to assets and increasing the return to those assets. The provision of infrastructure such as rural feeder roads, electrification, irrigation or urban infrastructure supporting small scale industry, serves both of these ends. As such, a government's commitment to poverty alleviation may influence infrastructure expenditures. However, to the extent that increasing the poor's human capital or putting a safety net in place are viewed as more effective or politically