method. The data source for this variable (K02) is also the _World Development Report 1991: Supplementary Data_ (henceforth, WDR9lSD).

Neither class of variables is a fully satisfactory measure of the stock of infrastructure. The first class of variables seriously underestimates the total stock of infrastructure.<sup>4</sup> To the extent that there is a strong positive correlation between road and rail infrastructure and other forms of transport and communication infrastructure, the effect is only a scale effect and the ranking by country is correct. However, if the ratio between road and rail infrastructure on the one hand, and other forms of transport and communication infrastructure on the other, differs substantially, the estimates will be biased and the direction of the bias is unknown. The second class of variables includes private as well as public capital stock. The relationship between the size of the private capital stock and current government investment in infrastructure depends upon whether infrastructure investment is a net substitute or complement to production. As noted earlier, available evidence suggests complementarity between private and public capital, thus K02 should be a multiple of the stock of public transport and communications infrastructure. However, not enough information has accumulated to determine whether the degree of complementarity is more or less constant across countries and, accordingly, the likely extent of measurement error.

1.2. Population Density: Low population density necessitates higher expenditure for a given level of infrastructure service. For example, in sparsely populated countries the miles of telephone wire needed to link two households will be greater, as will the miles of road needed to link two population centers or to link rural and urban markets. This influence implies that per capita infrastructure expenditures will be inversely related to population density. However, certain kinds of infrastructure expenditure, such as sewage systems and treatment facilities, are of limited importance when population densities are low. On this basis, infrastructure expenditures would be positively related to population density. Further, economies of scale may dictate a higher optimal level of infrastructure provision in more densely populated countries. Overall then, the influence of population density on infrastructure expenditures is uncertain.

Population density (DENS) is measured as population per square kilometer and is computed from data on the total population and the total land area in square kilometers. The data source for both components of DENS is WDR91SD.

1.3. Urbanization: If economies of scale in infrastructure provision dominate, then _ceteris paribus,_ countries with a higher proportion of the population in urban areas are expected to spend less on infrastructure per capita. While this force is expected to dominate, opposing forces are at work as well. Urbanization entails specialization and hence less self-provision. Whereas a family may dig their own well, and a village may be mobilized to build or repair a footpath or road, urban populations are more likely to rely on government provision of these types of infrastructure services (Heller and Diamond, 1990). Further, to the extent there is an urban bias in service provision, or if agglomeration economies increase the return