decline is likely for 2009. This time around, governments in LAC appear to understand that the private sector will not compensate for public expenditure.<sup>35</sup>

- _<u>Infrastructure Investment and Employment:</u>_ The employment generation potential of infrastructure investment may be considerable—averaging around 40,000 jobs per US$1billion in LAC across a mix of subsectors.  This excludes the tertiary effects of induced employment generation from direct and indirect employees’ consumption<sup>36</sup> Albeit limited in scope, rural road maintenance projects initiated through microenterprises may produce 200,000 to 500,000 direct jobs per US$1billion of disbursements.  Exact levels of employment generation per basket of investments are highly sensitive to local wages, split between skilled and unskilled labor, the sectors under consideration, the technology being deployed, the degree of importation of inputs, and substitution effect where there is limited slack in the labor market.

- _<u>Risks to Effective Infrastructure Investment</u>_ <u>:  A fast and significant expansion of</u> infrastructure investments presents several challenges for Governments.  A shortlist of these challenges includes:  sorting and planning contradictions, delayed implementation and impact, affordability challenges of the stimuli packages, and corruption risk.

- _<u>Impact of Public Expenditure Stimulus on Short-Term Growth:</u>_ The eventual impact of stimulus programs on short-term growth remains controversial.  Although a metaanalysis by the IMF reveals a range of multipliers of fiscal stimulus impact (typically from 0.6 to 1.4), the Fund’s Research Unit has just concluded that a potential return of $3 could be expected from each $1 of investment in stimulus, assuming a global response, monetary accommodation and a focus on a mix of investment and targeted transfers. There is also a potential cost for governments of doing nothing in the face of recession. Consumer propensity to spend and the confidence that consumers have in future economic activity may be an important variable that drives recovery.  As tangible, jobcreating and highly visible expenditures, infrastructure investment may help to boost consumer confidence in a government’s responsiveness to crisis.

- _<u>Impact of Infrastructure Investment on Long-term Growth:</u>_ There is relatively positive consensus about the long-term benefits to growth and poverty alleviation of infrastructure investment.  A recent meta-analysis by the Bank shows many more positive results than negative results related to impacts of infrastructure stock and quality on aggregate growth as well as micro-level factors.  OECD analysis produces similar results, showing higher impacts in those countries with lower baselines of infrastructure stock and performance.

> 35  Private financial flows into the region’s infrastructure sectors totaled about $20 billion dollars in 2008, not including commitments to the expansion of the Panama Canal.

> 36 Although US estimates from highway construction more than double the employment generation estimates when induced jobs are added, it should be remembered that other forms of transfers from government—tax credits, CCTs, food stamps—would also generate induced employment

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