Infrastructure Capital and Economic Growth: How Well You Use it May Be More Important than How Much You Have

Abstract

This paper shows that those low and middle income countries that use infrastructure inefficiently pay a growth penalty in the form of a much smaller benefit from infrastructure investments. The magnitude of this penalty is apparent when the growth experience of Africa is compared with that of East Asia: over one-quarter of the differential growth rate between these two regions can be attributed to the difference in effective use of infrastructure resources. At the same time, the difference due to new public capital formation is negligible. An even stronger impression is conveyed by the comparison of high and low growth rate economies. Here, more than forty percent of the growth differential is due to the efficiency effect, making it the single most important explanator of differential growth performance.