inventory costs and their impact on competitiveness. Section 6 evaluates the potential benefits of trade facilitation on competitiveness. Section 7 shows the impact of increased and bundled access to infrastructure services on the earnings of poor/rural people. Finally section 8 presents a set of solutions/recommendation to meet the challenge.

# **2. Brief Literature Review on the Impact of Infrastructure on Growth and Logistics Costs**

This section provides an overview of the recent empirical literature on the effects of infrastructure on productivity and growth. For the sake of brevity, the discussion is selective rather than exhaustive.

A number of empirical studies have found that infrastructure has a positive effect on output, especially in developing countries. Returns on infrastructure investments are generally highest during the early stages of development, when infrastructure is scarce and basic networks have not been completed. However, returns tend to fall with development, sometimes sharply. Indeed, some studies of the United States have found that infrastructure investment has negative effects on total output [Briceño-Garmendia, Estache and Shafik, 2004].

In his paper _Is public expenditure productive?_ Aschauer [1989] found that the stock of public infrastructure is a significant determinant of aggregate total factor productivity (TFP). However, the economic significance of these results was found to be implausibly large and not robust when more sophisticated econometric techniques are used [Holtz-Eakin, 1994; Cashin, 1995; Baltagi and Pinnoi, 1995]. Gramlich [1994] provides an overview of this literature.

The more recent empirical literature, relying on cross-country panel data, confirms that infrastructure makes a significant contribution to output. Such analysis relies on increasingly sophisticated econometric techniques to address reverse causation; infrastructure may cause growth, but growth may lead to a higher demand of infrastructure. Failure to take this endogeneity problem into account would result in an overestimation of infrastructure’s contribution to growth. Notable papers on this line include Canning [1999], using panel data for a large number of countries, and Demetriades and Mamuneas [2000], using data for OECD countries. Röller and Waverman [2001], using a framework that controls for the possible endogeneity of infrastructure accumulation, find that telecommunications infrastructure has large output effects. Similar results for roads are reported by Fernald [1999] using data on U.S. industry. Calderon and Serven [2003a] present a similar empirical analysis focused on Latin America. They find positive and significant output contributions from three types of infrastructure: telecommunications, transport and energy.

A few papers go beyond measures of infrastructure spending and stock and consider infrastructure efficiency or quality. Hulten [1996] finds that differences in effective use of infrastructure explain 25 percent of the growth difference between Africa and East Asia, and more than 40 percent of the difference between low- and high-growth countries. Using a large panel data set, Esfahani and Ramirez [2002] report that infrastructure has significant growth effects, but that its contribution is affected by institutional factors. Finally, Calderon and Serven 4