The Contributions of Infrastructure to Economic Development: A Review of Experience and Policy Implications (World Bank Discussion Paper)

This paper presents an examination of linkages between infrastructure and economic development based on both formal and empirical research and informal case studies. Its main thesis is that economic benefits result from investments in infrastructure only to the extent that they generate a sustainable flow of services valued by users. Therefore, an analysis of infrastructure's contribution to growth must consider the impacts of services as actually perceived, not at indirect indicators that measure only aggregate provision of infrastructure capital. The paper notes that macro and industry level research, while having limitations in both methodology and data, suggest a positive and statistically significant relationship between infrastructure and economic output. This paper suggests that to gain more insight into how infrastructure contributes to economic growth and to improved quality of life, and to understand the welfare costs of inadequate or unreliable infrastructure, it is necessary to look at microeconomic evidence. Interesting illustrations of these relationships may be found in developing countries because they demonstrate a wide variance in the availability and quality of infrastructure. The paper discusses some research on firms and households, as well as individual country experiences.