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Infrastructure gap in LAC Gerardo Reyes-Tagle Fiscal Municipal Management Inter-American Development Bank March 2015
Does higher investment lead to higher development?
*Author’s calcualtions with data from IMF and ECLAC, for a sample of 156 countries in the period 1990-2011.
y = 0.218ln(x) - 0.036 R² = 0.1703
00.10.20.30.40.50.60.70.80.9
1
0 10 20 30 40 50
HD In
dex
Avg. Investment/GDP (%) 1990-2011
Developing Countries
y = -0.0079x + 0.9156 R² = 0.2515
00.10.20.30.40.50.60.70.80.9
1
15 17 19 21 23 25 27 29HD
Inde
x Avg. Investment/GDP (%) 1990-2011
Latin American Countries
How much has LAC invested?
• Total investment in Latin America is relatively low compared to other regions. Economic infrastructure investment is even lower.
• Economic infrastructure investments in Latin-American countries in the past 20 years have represented between 10% and 20% of total investments.
*Average 1990-2012. Total Economic Infrastructure include: Transport, Energy, Telecommunications and Water and Sewage. ASEAN-5=Using IMF clasification ** Source: data from IMF and ECLAC
What is the quality of the infrastructure?
• Infrastructure investment not only is low, it ranks below average regarding quality indicators.
• The quality of infrastructure investment in Latin America ranks even lower when compared to per capita income.
*Own elaboration with data from World Economic Forum.
The tale of two regions…
• Low investment levels in Latin-America have hindered capital stock accumulation and have decreased TFP.
• Capital stock/GDP ratio in Latin
America grew 18% between 1980 and 2011 compared to 39% in Asia.
*Author’s calculations with data form the Penn World Tables (2014) ASIA-5: Korea, Taiwan, Japan, Hong-Kong and Singapore; LAC-6: Argentina, Brazil, Chile, Colombia, Mexico and Peru.
1980
2011
R² = 0.2042
0.88
0.9
0.92
0.94
0.96
0.98
1
1.02
1.04
2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3
TFP
Ratio (Capital Stock / GDP)
ASIA-5
1980
2011 R² = 0.878
0.88
0.98
1.08
1.18
1.28
1.38
2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3
TFP
Ratio (Capital Stock / GDP)
LAC-6
Stock of Capital very similar
$7,200 bill. Dlls.
$5,609 bill. Dlls.
$26,500 bill. Dlls.
$15,100 bill. Dlls.
How large are the investment gaps in LAC?
*Author’s calculations with data from Hofman, A. (2000) , IMF and ECLAC. The demand of investment increases at a 7.2% yearly rate, and is associated with the average growth of some Asian countries in the period 2000-2011 (China, Hong-Kong, Malaysia, Philippines, Singapore and South Korea). LAC5=Argentina, Brazil, Chile, Colombia and Mexico.
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
500.00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Inde
x (1
990=
100)
Total Investment gap, LAC-5
K Total K Total (hip.)
88%
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
500.00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Inde
x (1
990=
100)
Total Economic Inf. Gap, LAC-5
K Inf.Ec K Inf.Ec (hip.)
34%
• Investment gap (economic and total) has been increasing over the years.
Infrastructure deficit and the fiscal stance
Infrastructure investment and budgetary equilibrium in LAC-6
Author’s estimations based on ECLAC and IMF
Assuming that the demand doesn’t increase, just for closing the gap, LAC countries need to invest 5.7% of the GDP each year until 2019 for closing the infrastructure gap.
-6
-4
-2
0
2
4
6
8
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Wei
ghte
d av
erag
e %
GDP
Gov. Inv. closing gap inv. Deficit
Are PPPs the answer?
*Source: Data from PPI Database, World Bank. The
0%
5%
10%
15%19
90
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Argentina
0%
5%
10%
15%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Brazil
0%
5%
10%
15%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Chile
0%
5%
10%
15%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Colombia
0%
5%
10%
15%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Mexico
0%
5%
10%
15%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Peru
PPP as a % of Total investment