Investment in infrastructure not only raises investment directly, but can also crowd in private investment, under the right conditions. Crowding‐in of private investment is more likely if public investment occurs amidst economic slack and accommodative financial conditions, if there are sizable infrastructure gaps impeding private investment, and if it is implemented in a strong institutional environment with sufficient trade and financial openness (Kessides 2004; Appendix 4).

Investment in public infrastructure can spark large benefits. In particular, it can encourage urbanization in EMDEs by expanding market access, improving the delivery of services, fostering innovation, or reducing transportation costs (Sokoloff 1988; Citigroup 2016). Urbanization, in turn, has been associated with higher growth of output as well as labor productivity (Glaeser 2008; World Bank 2009; Dasgupta, Lall, and Lozano‐Gracia 2014). Infrastructure capital appears to be inversely correlated with income inequality among EMDEs, although the direction of causality remains a matter of debate (Ferreira 1995; Getachew 2010; Calderon and Serven 2014).

_Health investment_ . Gaps in health investment relative to the levels needed to reach sustainable development goals remain substantial (UNCTAD 2014; Wagstaff, Bredenkamp, and Buisman 2014). Investment in health yields both microeconomic and macroeconomic benefits that are associated with aggregate gains in human welfare. Healthier individuals are more productive, better at creating and adapting to new technologies, and inclined to invest more in education (Aghion, Howitt, and Murtin 2011). They also have a longer life expectancy and are likely to save more, which feeds back into investment (Zhang et al. 2003). This relationship holds across and within countries and for numerous measures of health outcomes (Weil 2014). At the macroeconomic level, better health outcomes are associated with higher growth.<sup>13</sup> By one estimate, a 1‐year improvement in a population’s life expectancy is associated with 4 percent higher output (Bloom, Canning, and Sevilla 2004).

_Educational investment._ Education investment gaps relative to the Sustainable Development Goals also remain sizable (UNCTAD 2014). Yet education investment that improves worker skills or reduces skill mismatches can raise worker incomes and productivity, as well as benefit firms. For individual workers, the average rate of return to another year of schooling is estimated to be a 10 percent increase in their lifetime labor market earnings (Montenegro and Patrinos 2014). For firms, a better match of worker skills to technological needs accelerates firms’ pace of technology absorption and expansion (Winthrop et al. 2013). This is also reflected in the positive impact of education investment on growth in macro‐level regressions.<sup>14</sup> _Clean energy investment._ Progress in achieving the United Nation’s Sustainable Energy for All Initiative objective remains slow (World Bank 2015f). Annual investment in clean energy is estimated to be about one‐third of that required to achieve the initiative’s goals. Yet clean energy technologies can generate more employment than traditional energy sources and energy‐saving technologies can be productivity‐ enhancing (Wei, Patadia, and Kammen 2010; Adhvaryu, Kala, and Nyshadham 2016).

# **6.2 Monetary policy**

Like fiscal stimulus, monetary policy can boost growth and investment in a cyclical slowdown. The room to employ monetary policy in the short run varies significantly across emerging economies. Most

> 13 World Bank (2007); Barro (2013); Baker et al. (2014); Barro and Lee (2015).

> 14 By one estimate, 1 additional year of male upper‐level schooling can raise growth by 1.2 percentage points per year (Barro

> 2013). Jones (2003) theoretically shows how educational attainment can be interpreted as an investment rate.

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