Public Capital, Growth and Welfare: Analytical Foundations for Public Policy

Public Capital, Growth and Welfare: Analytical Foundations for Public Policy

Public Capital, Growth and Welfare: Analytical Foundations for Public Policy

Public Capital, Growth and Welfare: Analytical Foundations for Public Policy

Synopsis

In the past three decades, developing countries have made significant economic and social progress, from improved infant mortality rates to higher life expectancy. Yet, 1.3 billion people continue to live in extreme poverty in the developing world, leading policymakers to place a renewed emphasis on policies that could promote economic efficiency and the productivity of the poor. How should these policies be sequenced and implemented to spur growth? Would a large, front-loaded increase in public infrastructure investment yield the desired growth-promoting effect?

Taking a rigorous look at this kind of investment and its outcomes, this book explores the different channels through which public capital in infrastructure may affect growth and human welfare, and develops a series of formal models for understanding how these channels operate. Bringing together a vast amount of research in one unifying framework, Pierre-Richard Agénor finds that in considering investment in infrastructure, a variety of externalities need to be factored into analytical models and introduced in policy debates. Lack of access to infrastructure not only constrains the expansion of markets and private investment, it may also hinder the achievement of health and education targets. Ease of access, conversely, promotes innovation and empowers women by allowing them to reallocate their time to productive uses.

Laying a solid foundation of economic facts and ideas, Public Capital, Growth, and Welfare provides a comprehensive look at the critical role of public capital in development.

Excerpt

Over the past three decades, significant economic and social progress has been achieved in the developing world. Infant mortality rates have been halved, primary school enrollment rates have doubled, and in some countries life expectancy has increased by more than 20 years. During the 1990s alone, per capita income increased on average by 2.6 percent.

However, progress has been uneven. In some countries, the rapid spread of HIV/AIDS has literally erased many of the gains achieved in increasing life expectancy. And although the proportion of people in extreme poverty fell slightly as a whole over the past decade, the absolute number of poor people increased in almost all regions (except in East Asia), with large concentrations in South Asia (which contains the largest number of the world’s poor) and in sub-Saharan Africa (which continues to have the largest proportion of its population living in poverty). Today, one in every four people, or 1.3 billion persons, lives in extreme poverty in the developing world. In the past 10 years alone, the number of poor people in sub-Saharan Africa increased by more than a third. Although access to clean water and sanitation is now recognized as a human right by the United Nations, almost 900 million people continue to lack access to safe drinking water and more than 2.6 billion do not have access to basic sanitation. Because of water- and sanitation-related diseases, each year about 1.5 million children under the age of five die and millions of school days are lost (see United Nations (2005)). Malaria, by itself, claims the lives of 1 million children under the age of five every year. Through various channels, the global financial crisis triggered by the collapse of the subprime mortgage market in the United States has set some countries back by more than a decade.

The persistence of poverty and lack of progress in human development has led policymakers to put renewed emphasis on policies aimed at promoting economic efficiency and improving the productivity of the poor, generating income-earning capabilities and creating opportunities for using them productively, through education and health (which affect productivity), increasing opportunities to invest in small- and medium-size enterprises (which depend in part on access to credit), and improving housing and basic infrastructure services.

Much of the current international debate on how these policies should be sequenced has centered on the need to promote a large, front-loaded, increase in public investment. Reports by the United Nations (2005), the Commission for Africa (2005), and the World Bank (2005a) and prominent advocates like Jeffrey Sachs (2005, 2008) have indeed recommended a “Big Push” in public infrastructure investment in poor countries, financed by generous debt relief . . .

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