The Impact of Infrastructure Spending in Sub-Saharan Africa: A CGE Modeling Approach

57 Pages Posted: 20 Apr 2016

See all articles by Jean-François Perrault

Jean-François Perrault

affiliation not provided to SSRN

Luc Savard

Université de Sherbrooke - Department of Economics

Antonio Estache

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Date Written: July 1, 2010

Abstract

The authors constructed a standard computable general equilibrium (CGE) model to explore the economic impact of increased spending on infrastructure in six African countries: Benin, Cameroon, Mali, Senegal, Tanzania, and Uganda. The basic elements of the model are drawn from EXTER, adjusted to accommodate infrastructure externalities. Seven sectors were considered: food crop agriculture, export agriculture, mining and oil, manufacturing, construction, private services, and public services. Four sets of simulations were conducted: baseline nonproductive investments, roads, electricity, and telecoms. For each set of simulations, five funding schemes were considered: reduced public expenditure; increased value-added taxes; increased import duties; funding from foreign aid; and increased income taxes. In general, the funding schemes had similar qualitative and quantitative effects on macro variables. For road and electricity investment, there were relatively large quantitative differences and some qualitative differences among funding schemes at the macro level. Sectoral analysis revealed further disparities among countries and investment types. The same type of investment with the same funding sources had varying effects depending on the economic structure of the sector in question. The authors find that few sectors are purely tradable or non-tradable, having instead variable degrees of openness to trade. If the current account needs to be balanced, funding investment through foreign aid produces the strongest sectoral effects because strong price and nominal exchange rate adjustments are needed to clear the current account balance. In addition, the capital/labor ratio of each sector plays an important role in determining its winners and losers.

Keywords: Economic Theory & Research, Debt Markets, Emerging Markets, Investment and Investment Climate, Public Sector Expenditure Policy

Suggested Citation

Perrault, Jean-François and Savard, Luc and Estache, Antonio, The Impact of Infrastructure Spending in Sub-Saharan Africa: A CGE Modeling Approach (July 1, 2010). World Bank Policy Research Working Paper No. 5386. Available at SSRN: https://ssrn.com/abstract=1650477

Jean-François Perrault (Contact Author)

affiliation not provided to SSRN

No Address Available

Luc Savard

Université de Sherbrooke - Department of Economics ( email )

Sherbrooke, Quebec J1K 2R1
Canada

Antonio Estache

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
32 (0)2 6503838 (Phone)

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