# 4. Conclusions

Without a thorough understanding of the economy-wide costs of infrastructure disruptions, policy makers are ill-equipped for identifying, prioritizing and implementing adequate investments and reforms for enhancing the reliability, quality, and resilience of their infrastructure systems.

Disruption of infrastructure services affect firms in every economy around the world. However, disruption frequencies vary widely across as well as within economies. Whether or not a firm will have to cope with blackouts, water shortages, logistical obstacles or loss of telecommunication ultimately depends on the interaction of country-level as well as firm-level exposure and resilience factors. The quality of infrastructure is generally linked closely to the level of economic development, proxied by GDP per capita in this paper and by the quality of the institution in Kornejew, Rentschler, & Hallegatte (2019). For transport, water, electricity, and infrastructure more generally, more developed countries tend to have fewer disruptions and higher perceived infrastructure reliability. However, the data shows that there exist significant differences in infrastructure quality between countries with the same level of development, what is explained in part by firm-level factors. On average, larger firms tend to experience less water disruptions and blackouts while at the same time many outages cause firms to invest in own back-up generation. Exposure to disruptions is also highly dependent on the sector in which the firm operate, further suggesting that effective measures are taken to shield critical infrastructure to prevent outageinflicted damage from spreading further. Finally, concerning natural hazards, extreme precipitation and storms are positively associated with water disruptions, while transport networks are affected by storms.

Reliable and efficient infrastructure systems are crucial to enable firms to follow long-term planning, and to maximize their capacity, without the need to invest excessively in expensive back-up or contingency technology. A thorough analysis of electricity network systems shows that, in the 138 countries covered by the Enterprise Surveys, sales losses are worth US$81.6 billion due to power outages (lower bound estimate). The total annual blackout duration reported by firms is estimated to increase sales losses by 0.29 percentage points for each 100 hours of blackout. When facing frequent electricity outages, a common response strategy is to operate their own back-up generators. While these generators enable firms to bridge power outages, they also require firms to purchase, install, maintain, and operate costly machinery. Unreliable power supply can be estimated to cause firms in the industrial sector to spend about US$ 65 billion per year on back-up self-generation – corresponding to 0.28% of GDP of the 129 sampled countries.

Overall, and building on a harmonized firm-level dataset collected by the World Bank’s Enterprise Survey in 138 mostly small- and middle-income countries accounting for 32% of global GDP, models suggest a robust and significant negative impact of infrastructure disruptions on firm utilization rates of water, electricity and transport infrastructure. For 118 countries, unreliable infrastructure (water, transport and electricity) leads to utilization losses worth US$151 billion real 2018 USD, amounting to 0.59% of sample GDP. Therefore, for as long as infrastructure systems remain disruption-prone, this will have substantial adverse effects on the continuity of production and service delivery, affecting the smooth functioning of supply chains, diminishing aggregate productivity, and restricting the ability of firms to trade and compete internationally.

More importantly, estimations show that for water and transport, indirect effects may be as or even more important than direct impacts. One implication is that estimates looking only at direct impacts of infrastructure disruptions may be missing a large part of the economic cost.

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