calculate or forecast the relative benefits of “visibility” in stimulus planning, the political economy benefits of governmental concern about employment generation and pro-activity are self-evident as governments around the world scramble to put together stimulus packages. More importantly, they may have real effects on the multipliers needed for recovery.

Of course, at some level the financial markets must also respond to the government plans and may not wait for consumer reaction to condemn a stimulus package. If financial markets are not convinced about the policies and their impact on inflation and sustainable growth, then the cost of capital will rise and an accommodative monetary policy will not be possible. For this reason, the US Administration, for one, has been focusing on establishing a framework for accountability and testing performance and has even been promoting the target of a medium-term balanced budget despite the increased public expenditure. These institutional arrangements and policy initiatives oriented toward fiscal sustainability will become increasingly relevant for LAC as the region seeks to assure financial markets that its stimulus packages are sustainable and not so inflationary that they will prohibit monetary accommodation.

# **6.  Long-term Impacts of Infrastructure Investment on Growth – A Short Review**

While the debate about the links between stimulus spending and short-term growth continues to wage, the economic literature on the impact of infrastructure on long-term growth can be described as more decidedly positive. A meta-analysis conducted by the Bank in 2008 that reviews micro and macro analyses of the impact of increases or improvements in infrastructure stocks (or their variations) and literature finds an overall degree of positive outcomes from the existing literature. This holds for both long-run economic growth and specific factor outputs.<sup>28</sup> Overall, of the 140 specifications from 64 papers considered, the majority of the empirical literature finds a positive and significant link between infrastructure and development outcome,29 Developing country data lead to positive results slightly more often than those exercises using data from developed economies. These results hold true for different proxies for infrastructure, including measure of public capital (i.e. investment in infrastructure, generally from public sources although not exclusively) or physical indicators. Looking mostly at the public capital stocks of US, the macro-level literature finds very large estimates for the elasticity of infrastructure--between 0.20 and 0.40. These results survive to different proxies of changes in infrastructure’s stock and output measures.

To site specific examples, the World Bank found in 2004 that if Latin American countries' infrastructure stocks were to catch up with the regional leader, they would get additional growth of between 1.1 percent and 4.0 percent per year.30 The OECD also examined the relationship between infrastructure investment (including rehabilitation and maintenance) and GDP over time and across countries and found that infrastructure investment drives long-term economic output more than other kinds of physical investment. For example, investments in electricity and telecommunication produce an approximately 0.25 percent increase in long-term economic growth rates for each 10 percent of increase of service penetration.<sup>31</sup>

> drawing another 30 million by itself.  To the degree that Google search is an indicator, at 1⁄4 or 1/5 the cost, there appears to be about 4 or 5 times as much interest in the stimulus than the bailout.

> 28  Straub (2008).

> 29 A small fraction of the literature (6 percent) finds a negative relationship.

> 30  Calderon and Serven (2004).

> 31 OECD (2009).

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