Public Infrastructure and Structural Transformation

55 Pages Posted: 20 Dec 2017

See all articles by Fidel Perez‐Sebastian

Fidel Perez‐Sebastian

Universidad de Alicante - Department of Economic Analysis

Jevgenijs Steinbuks

World Bank - Development Research Group (DECRG)

Date Written: December 19, 2017

Abstract

This study argues that public infrastructure is an important though previously neglected driving mechanism of the structural transformation process. To assess its significance quantitatively, this study first develops a multisector neoclassical growth model with heterogeneous firms, where public infrastructure contributes to firms' production and mitigates the barriers to firms' entry. The model is calibrated using data from Brazil, a country that has significantly expanded its infrastructure in recent decades, yet remains in deep need of further infrastructure improvements. The accumulation of infrastructure accelerates the structural transformation through generating higher returns and lowering entry costs in sectors with greater public capital intensity. In the simulations, public capital formation explains about 15 percent of the process. The paper also shows the effects of different barriers to public capital formation on the structural transformation and GDP per capita.

Keywords: Infrastructure Economics, Technology Industry, Technology Innovation, Infrastructure and Law, Infrastructure Finance, Infrastructure Regulation

Suggested Citation

Perez Sebastian, Fidel and Steinbuks, Jevgenijs, Public Infrastructure and Structural Transformation (December 19, 2017). World Bank Policy Research Working Paper No. 8285, Available at SSRN: https://ssrn.com/abstract=3090771

Fidel Perez Sebastian (Contact Author)

Universidad de Alicante - Department of Economic Analysis ( email )

03080 Alicante
Spain

Jevgenijs Steinbuks

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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