# **7. Impact of Poverty**

The recent expansion of infrastructure coverage has generally tended to benefit the poor. As the poor, particularly in remote rural areas, are usually the last to be connected, the gradual recent expansion of services in Latin America can be expected to have benefited them more than the better off. But country data presents a mixed picture [Estache, Foster and Wodon, 2002]. For example, Brazil made great progress in providing water access to the lowest urban income decile between 1989 and 1996. The proportion of this group with access jumped from 53 percent to 74 percent, against a rise from 92 percent to 97 percent for the seventh decile. But in rural areas, absolute increases benefited the seventh decile more than the poorest [Fay and Morrison, 2007].

Infrastructure access is critical for improving economic opportunities for the poor. When poor individuals and underdeveloped areas become connected to core economic activities, it enables them to access additional productive opportunities [Estache, 2004]. Likewise, infrastructure development in poor regions contributes to the reduction of production and transaction costs [Gannon and Liu, 1997]. For example, in poor rural areas infrastructure expands job opportunities for the less advantaged by reducing the costs of accessing product and factor markets. And infrastructure access can raise the value of the assets of the poor. Recent research links the asset value of poor farm areas - as proxied by the net present value of the profits generated by their crops —to the distance to agricultural markets [Smith et al., 2001]. Improvements in communication and road services imply capital gains for these poor farmers [Jacoby, 2002].

Improved infrastructure also affects the health and education levels of the poor. Several impact evaluations have demonstrated the causality between higher access to basic services and human development indicators. For instance, in Argentina, Galiani et al. [2005] find that child mortality fell by 8 percent in areas which had privatized water utilities (and hence experienced improved coverage and quality), with most of the reduction occurring in low-income areas where the water network expanded the most. More generally, Fay et al. [2005] find that providing the poorest quintile in developing countries the same access to basic services as the richest would reduce child mortality by 8 percent and stunting by 14 percent. There are other, less obvious, linkages [explored in Brenneman, 2002] such as improved transport facilitates access to healthcare, as well as easier staffing and operation of clinics. A stronger transportation system and a safer road network help raise school attendance. For girls, enrollment is also helped by greater access to piped water, which would otherwise have to be fetched. Electricity also allows more time for study, while the positive health impacts of clean water allow more time in the classroom [Fay and Morrison, 2007].

With regard to **new consumers** , the initial access entails major positive welfare effects due to having access to the service. In relation to the **existing consumers** , the welfare effect also appears positive due to better quality of service. While the price effect on those consumers was mixed-tariffs increased in some countries and sectors while they diminished in others, the quality of service improved significantly, and that appears to more than compensate the increases in tariffs. But perhaps the most dramatic effects are seen in the impact on new consumers. To illustrate the magnitude of the impact, a recent study in Peru, Escobal and Torero (2004) 32