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Journal of Economic Literature Vol. 61 No. 4 2023

The Global Infrastructure Gap: Potential, Perils, and a Framework for Distinction

Camille Gardner1; Peter Blair Henry2

1 PhD student, Department of Economics, Brown University. · 2 Principal Investigator of the Alfred P. Sloan Foundation and Hoover Instiution-funded PhD Excellence Initiative; Class of 1984 Senior Fellow, Hoover Institution; and Senior Fellow, Freeman Spogli Institute, Stanford University.

Abstract

In 2015, the World Bank claimed that rich-country private capital could: (i) close the infrastructure services gap in poor countries, (ii) achieve the sustainable development goals, and (iii) make money by moving from “billions to trillions” of investment in poor-country infrastructure. Our framework distinguishes those poor countries in which the Bank’s claim is tenable from those where it is not. For a given poor country, the framework reveals that investing a dollar in infrastructure is efficient if the social rate of return on infrastructure clears two hurdles: (a) the social rate of return on private capital in the poor country, and (b) the social rate of return on private capital in rich countries. Applying the framework to the only comprehensive, cross-country dataset of social rates of return on infrastructure indicates that in 1985 just 7 of 53 poor countries cleared the dual hurdles in both paved roads and electricity.

DOI
10.1257/jel.20221530
Volume
61
Issue
4
Pages
1318-1358
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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