to infrastructure capital are put to productive use and are not subject to “white elephant” project choices and corruption.

Under these conditions, growth of real GDP rises to 7.4 percent per year (Table 5). By construction, public investments are higher than in the baseline, but the additional GDP growth that is generated crowds-in additional private investment response. The additional growth is driven increasingly by productivity (TFP) gains throughout the economy, which are generated by spillover effects from the improved level of service provision in infrastructure and water/sanitation.<sup>14</sup> Productivity gains now contribute 40% to growth in real GDP at factor cost, compared to a contribution of 38% in the baseline (see Figure 2). Due to improvements in productivity, Ghanaian products become more competitive in the world markets. This offsets the negative effects of real exchange rate appreciation in the baseline and allows export volumes to increase more relative to imports (compared to the baseline, the improvement in export growth is 0.8 percentage point per year, while import growth accelerates by 0.5 percentage points per year). Although this accelerated growth scenario is not explicitly export-driven (i.e., the initial “push” comes from improvements in public infrastructure and water/sanitation), faster export growth plays a key role in moving Ghana up to a higher growth path.<sup>15</sup> There is no costless, sustained acceleration in growth, and the private sector may have to bear part of the burden. In the accelerated growth scenario, the investments in infrastructure and water/sanitation sectors are financed through direct taxes, which results in the 2015 share of direct taxes to GDP rising from 5.7 percent in the baseline to 8.0 percent in the accelerated growth scenario. This has chilling effects on private consumption: while GDP growth rate increases by half a percentage point per year (from 6.9 percent per year in the baseline to 7.4 percent per year in the accelerated growth scenario), the increase in the growth rate of private consumption is only 0.1 percentage points per year. While it is possible to pursue alternative financing mechanisms for the investment projects in the bottleneck sectors (e.g., domestic or foreign borrowing), these also have their drawbacks (such as crowding out of private investment) and the implications of each financing choice should be carefully considered.

**Table 6 Ghana:  Projected MDG achievements in the accelerated growth scenario**

|||1990|2004|2015|Target|Distance to target|
|---|---|---|---|---|---|---|
|Poverty headcount|(%)|52|30|10|26|402%|
|Primary completion rate|(%)||47|94|100|88%|
|Under-5 mortality|(per 1,000)|122|112|94|40|24%|
|Maternal mortality|(per 100,000)|740|503|427|185|24%|
|Access to safe water|(%)|54|56|76|85|70%|
|Access to sanitation|(%)|21|35|72|85|74%|

Accelerated growth leads to significant achievements in water and sanitation and generates important spillovers for other HD targets, but the non-poverty MDGs are likely to remain elusive. Table 6 shows the evolution of MDG indicators under the accelerated

> 14 In technical terms, the model uses an elasticity linking investment in public infrastructure and water/sanitation to the growth of the economy-wide TFP.

> 15 The contribution of net exports to growth in the accelerated growth scenario is -27 percent, compared with -30 percent in the baseline scenario.

14