# 1 Introduction

Infrastructure investments have been proposed in the development literature as an influential factor of economic growth, working through at least two of the three classic drivers of economic growth: directly via capital accumulation and indirectly via total factor productivity gains. Infrastructure investments are hypothesized to facilitate private investments by lowering production costs and opening new markets, thereby creating new production, trade and profit opportunities. Roads reduce transport costs and ports reduce transaction and trade costs. Both can be deemed to expose local firms to the innovative pressures of international competition.

Public capital can be readily incorporated in an endogenous growth framework, demonstrating expectations of a positive pay-off from investment in infrastructure,<sup>1</sup> while a separate literature examines the question of which funding structure for public investment is optimal for growth purposes.<sup>2</sup> A seminal paper by Aschauer (1989a) found a strong impact of infrastructure capital on aggregate TFP, a finding replicated by a number of early studies - for instance Munnell (1990a, 1990b, 1992) for the USA, Mitra et al. (2002) for India, and Easterly and Rebelo (1993) for cross-sectional country data. Similarly, the World Bank’s landmark World Development Report 1994 highlighted multiple links between infrastructure and development and emphasized how policy can improve not only the quantity, but also the quality of infrastructure services in developing countries.

However, the economic significance of many of these early results were questioned not only as implausibly large, but as lacking robustness to the use of more sophisticated, and appropriate econometric techniques - see for instance Holtz-Eakin (1994), Cashin (1995) and Baltagi and Pinnoi (1995). While more recently a large body of literature has responded to the identified estimation issues, and reported continued positive and potentially strong economic growth impacts of infrastructure capital,<sup>3</sup> and infrastructure investments have been explicitly linked with child health, human capital accumulation, and the achievement of the Millennium Development Goals,<sup>4</sup> countervailing evidence of either ambiguous,<sup>5</sup> insignificant or negative<sup>6</sup> impacts of public capital on development prospects continues to emerge also.<sup>7</sup>

> 1 See for instance Barro (1990). Ghosh and Roy (2002), Gong (2003), Krichel and Levine (2001), Sanchez-Robles (1998a) and Mourmouras and Tijerina (1997) provide extensions and modulations.

> 2 See, for instance, Chatterjee et al (2003), Devarajan et al (1998), Gong (2003), Ho and Wang (2005), Kalaitzidakis and Kalyvitis (2004), and Mourmouras and Tijerina (1997).

> 3 This is true of studies employing: (1.) cross-national data, see for instance Aschauer (1998), Canning (1999), Demetriades and Mamuneas (2000), Hurlin (1999), Leipziger (2001), Miller and Tsoukis (2001), Nourzad (200), Röller and Waverman (2001); (2.) country-specific regional data - see for instance Aschauer (2001), Ayogu (1999), Charlot et al (2003), Destefanis and Sena (2005), Fernandez and Polo (2002), Fuentes Flores and Mendoza Cota (2003), Haughwout (2002), Kemmerling and Stephan (2002), Petraglia (2002), Ramirez (2002), Rovolis and Spence (2002), Salinas Jimenez (2003), Stephan (2003); (3.) country-specific specific infrastructure types - see for instance Everaert and Heylen (2001), Fernald (1999), Shirley and Winston (2004), (4.) aggregate country data - see for instance Badawi (2003), Everaert (2003), Fedderke, Perkins and Luiz (2005), Frutos et al (1998), Herrera (1997), Kalyvitis (2003), Paul (2003), Pereira and Sagales (1999), Ramirez (2000b); and (5.) sectoral data - see for instance Brox and Fader (2005), Fernandez and Montuenga-Gomez (2003), Paul, Sahni and Biswal (2004).

> 4 See Leipziger et al. (2003), and Akinbobola and Saibo (2004).

> 5 See for instance Bonaglia et al (2000), Lobo and Rantisi (1999), Sanchez-Robles (1998b).

> 6 See for instance Canning and Pedroni (2004), Ghafoor and Yorucu (2002), and Thangalevu and Owyong (2000).

> 7 An obvious extension of this empirical literature is an examination of the extent of underinvestment in infrastructure, and its consequences for economic growth. For instance, on the basis of comparative experience from the 1990s, Easterly and Serven (2004) estimate that about one-fifth of Latin American growth underperformance relative to East Asia was directly related to underinvestment in infrastructure, while Esfahani and Ramirez (2003) estimate that sub-Saharan Africa’s poor growth performance was in part related to underinvestments in electricity and telecom infrastructure, and Eustache (2005) estimates that if Africa had enjoyed Korea’s quantity and quality of infrastructure, it would have raised its annual growth per capita by about 1 percentage point. Bajo-Rubio and Diaz-Roldan (2005) examine underprovision of public capital for Spanish regions, while Miller and Tsoukis (2001) infer sub-optimal provision of public capital for a larger set of countries. Given anticipated infrastructure impacts on human welfare and equity across community and income groups, further questions surround relative access to infrastructure services across urban and rural households, and different income groups. Often the lowest household income groups have no

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