Second, infrastructure services help increase household income and therefore welfare (e.g., market access to household products, job created by the construction and operation of the infrastructure projects). Infrastructure projects, such as construction of road, irrigation canal, and power plants, provide jobs to low‐income households, which are the main source of unskilled labor in the short‐run. In South Asia, a key source of cash income to unskilled labor is construction work in infrastructure projects. Using a sample survey of cities from 20 developing countries over the period 1980‐2005, Seetanah et al. (2009) find that transport and communication infrastructure helps reduce urban poverty in developing countries. Using a large panel data set encompassing over 100 countries and spanning the years 1960‐2000, Calderon and Serven (2004) find that increased infrastructure quantity and quality reduces income inequality. Another strain of the literature argues that connective infrastructure services, such as roads, do not necessarily help reduce poverty in rural and remote areas as poor households cannot afford them. Using survey data from Ethiopia, Zambia, and Vietnam, Bryceson et al. (2008) find that, in extremely remote areas, enhancing the mobility of the rural poor does not necessarily reduce poverty given the poor's lack of access to motor vehicles and ability to pay for public transport. This finding shows that infrastructure investments are not a silver bullet for reducing poverty.

Third, infrastructure investment boosts economic growth, which spills over to household welfare. Economic growth and welfare are positively correlated. This reflects the fact that when a country achieves higher economic growth and development, the welfare of its population would also increase. Gupta and Barman (2010) support this hypothesis developing an endogenous growth model with special focus on the role of health capital, public infrastructure, and environmental pollution. They find no conflict between the social welfare maximizing solution and the growth rate maximizing solution in the balanced growth equilibrium in an economy.

**3. Methodological Framework for Prioritization of Infrastructure Projects/Portfolios**

The demand for infrastructure investment is enormous but the available financial resources are limited; therefore, prioritizing infrastructure investment needs is crucial. Criteria used to prioritize infrastructure investment needs play a major role in mitigating the infrastructure gap. A few existing studies attempted to address this question (see e.g., Berechman and Paaswell, 2005; Karydas and Gifun, 2006), but the methodological framework they developed is narrow and can be applied only to rank infrastructure investment projects. This section aims to develop a methodology that would be helpful in prioritizing infrastructure needs in developing countries, particularly in South Asia.

How to prioritize investment projects or portfolios is a common question a government at any jurisdictional level asks. This question is especially critical in developing countries, particularly in South Asia and Sub‐Saharan Africa where demand for investment is huge and financial resources are limited. Without an appropriate methodological framework to assess investment projects, it is difficult to allocate funding across various investment projects. The methodological framework consists of three main steps: (i) identifying factors that affect infrastructure investment decisions, (ii) quantifying identified factors, and (iii) ranking the infrastructure projects.

- **3.1 Identifying and Quantifying Factors Affecting Infrastructure Investment Decisions**

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