Domestic resource mobilization. Infrastructure

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Setting the scene: Infrastructure patterns in emerging markets. By Christian Daude and Ángel Melguizo

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Domestic resource mobilization. Infrastructure

  1. 1. Domestic resource mobilization. Infrastructure Setting the scene: Infrastructure patterns in emerging markets Christian Daude and Ángel Melguizo Americas Desk OECD Development Centre Development Finance Network (DeFiNe) Annual Meeting Paris, 10-12 October 2010
  2. 2. Main messages • Infrastructures are key for potential growth, development and stabilization policies (e.g. G20 agenda) Growth and inequality gaps Asia-Latin America explained by infrastructure gaps – less spending, lower quality (Calderón and Servén, 2004b) • Emerging economies: significant infrastructure gaps • Latin America lags behind Asia and emerging Europe • Significant differences across infrastructure types (basic, transport, energy and telecommunications) and countries • Fundamentals-observed levels (Balmaseda, Daude, Melguizo and Taft, 2010) • Policy response • Building better institutions (quality of bureaucracy, fiscal position) • Improving regulation (in particular around public-private financing) 2
  3. 3. Setting priorities: infrastructure levels Per capita telephone lines and Kilowatts pc and Urbanization Income level, 2007 rate, 2006 14 10 9 Developed 13 8 Developed Eastern Europe Log lines/pop Log Kws/pop 7 Eastern Europe 12 Asia LatAm LatAm 6 Asia 5 11 4 10 3 0 1 2 3 4 5 20 40 60 80 100 120 Log GDP pc Urbanization ratio Source: Balmaseda et al. (2010) Source: Balmaseda et al. (2010) Income and population matter – but so do demographic (age profile), social (urbanization) and economic (sector mix) variables. 3
  4. 4. Empirical model (Balmaseda et al., 2010) Explanatory variables - Per capita income (level and squared) - Socio- demographics (urbanization, density) Predicted infrastructure - Productive structure patterns (Km/area, KW pc, (services and industry vs. pc lines) agriculture) ‘Degree of achievement’ (Observed levels/ Patterns) Observed levels (Km/area, KW pc, pc lines) Predicted infrastructure patterns (for country i, in time t) can be compared to actual levels, to estimate gaps and identify priorities. 4
  5. 5. Results (observed vs. predicted): Priorities Observed / Predicted (%) Paved roads Electricity Capacity Generation 280% 160% Eastern Europe Eastern Europe 240% 140% 120% 200% 100% 160% 80% LatAm MAX-MIN LatAm 120% Asia 60% 80% Asia 40% 40% LatAm MAX-min LatAm 20% 0% 0% 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Source: Balmaseda et al. (2010) Source: Balmaseda et al. (2010) Asian and Lat. Am. challenges concentrated in Transport and Energy infrastructure. In LAC, even the regional leader is below predicted levels. 5
  6. 6. Results (observed vs. predicted): Priorities Observed / Predicted (%) Telephone lines Access to improved water 450% 150% 400% 350% 130% 300% LatAm MAX-min LatAm 250% LatAm MAX-min 110% 200% LatAm 150% Eastern Europe Eastern Europe 90% 100% 50% Asia Asia 70% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Source: Balmaseda et al. (2010) Source: Balmaseda et al. (2010) The situation in telecommunication and basic infrastructure is more balanced. Some good practices may stem from LAC. 6
  7. 7. Results (gaps and fiscal balances): Domestic financing Railways Electricity 6 6 4 4 e( ecg | X ) 2 2 0 0 -2 -2 -.5 0 .5 1 1.5 -.5 0 .5 1 1.5 e( debtgdp | X ) e( debtgdp | X ) coef = -.52702326, (robust) se = .18359908, t = -2.87 coef = -.70912416, (robust) se = .09684161, t = -7.32 Source: Balmaseda et al. (2010) Source: Balmaseda et al. (2010) Lower public debt ratios are correlated with lower infrastructure gaps • Fiscal consolidation have been traditionally based on investment cuts (Calderón and Serven, 2004a, Martner and Tromben, 2005 for LAC) • Public borrowing costs reflect (perceptions of) debt sustainability 7
  8. 8. Results (gaps and bureaucracy): Public administration Paved roads Electricity 4 6 4 2 e( ecg | X ) 2 0 0 -2 -2 -3 -2 -1 0 1 -3 -2 -1 0 1 e( bqual | X ) e( bqual | X ) coef = .45977591, (robust) se = .03161675, t = 14.54 coef = .57518505, (robust) se = .03843958, t = 14.96 Source: Balmaseda et al. (2010) Source: Balmaseda et al. (2010) Better institutions (quality of bureaucracy) are correlated with lower infrastructure gaps • Need to have domestic resources and management capacity • Governance, control of corruption, adequate regulation 8
  9. 9. Domestic resource mobilization. Infrastructure Setting the scene: Infrastructure patterns in emerging markets Christian Daude and Ángel Melguizo Americas Desk OECD Development Centre www.oecd.org/dev/americas Development Finance Network (DeFiNe) Annual Meeting Paris, 10-12 October 2010

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