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Beyond Growth: Is investing in infrastructure good for people’s well-being?

Jordan Schwartz's picture

Beyond Growth:  Is investing in infrastructure good for people’s well-being? / World Bank Photo Collection

In our last blog, we asked whether it is possible for an infrastructure investment in Latin America and the Caribbean to hit the triple win: spur growth, aid societal well-being, and help the environment.

One young woman, on the World Bank Facebook page, posted this plea: "We as citizens have to demand these types of investments from our governments: modern roads, clean energy, investments that create employment without contaminating." ("Nosotros como ciudadanos tenemos que exigir ese tipo de inversiones a nuestros gobiernos: vías modernas, energía limpia que dé trabajo y no contamine.")

I take this as a signal that we should move beyond growth, so...

We explored the first linkage and found that the bonds are indeed strong between infrastructure investment and growth, both short-term and long-term. And while growth is crucial to poverty alleviation, growth can’t do the job alone. A more holistic view of development will help us to judge whether investment in infrastructure is good for society’s well-being. From both an economic and a personal perspective, we want to know if an investment is helping to include its users in the economy, to bring opportunity or advancement to its households.

One proxy of inclusiveness is income equality, and the research shows that, yes, larger stocks and higher quality infrastructure help improve the distribution of wealth. Although income equality tugs at our sense of fairness, as a sole indicator of inclusiveness it feels very indirect and somewhat impersonal. That is, money ain’t everything. For an investment to be truly inclusive, it needs to do something… to provide a service that makes people healthier and happier.

Although the application of Economic Impact Evaluation to the infrastructure sectors is in its infancy, we can see some linkages between infrastructure and development outcomes without stretching our imaginations beyond the evidence. We can say, with some confidence, that:

  • Better public transport networks get us more reliable access to job markets and create cities with less congestion and pollution.
  • Better water and sanitation mean less schistosemiasis (snail fever), diarrhea and infant health problems. 
  • More reliable electricity means more time to study and learn, and the freedom to work out of the home.

All season roads mean better access to markets, schools and hospital… and to cheaper goods.

But does the average citizen paying fuel taxes, utility bills and bus fees think about these indirect impacts?

If not, what do the people want from infrastructure investment? It turns out the answer is tautological: We want the infrastructure service that the infrastructure is supposed to provide. During public consultations for a national Infrastructure Strategy in El Salvador not too long ago, an elderly man in the village of Villa Belen expressed this better than I could.

The truth is that nobody would move to this town, because there is not a single basic service here. Those who are here now are truly desperate…we are on a boat with many problems, but if we abandon it, we will drown. If somebody would offer me money, I would take it and leave everything here. There is no light, no water, no basic services.”

Time after time, when the poor are asked what their priorities are, it is the infrastructure service itself that surfaces to the top.

The “well-being” of the poor is improved when they have household sewerage connections and running tap water they can trust. Period. Their lives are better when they have reliable electricity and when they can get get to a good road easily. Period. City dwellers want better public transport because they want better public transport. It means less waiting, less stress, more time for the important things in life. Studying the impact of infrastructure services is crucial to design and to investment prioritization.

But we don’t need regression analysis or experiments with control groups to grasp the truth of the importance of infrastructure services for the poor. They tell us themselves and, ultimately, this is the link between infrastructure and inclusiveness.

Comments

Submitted by sunny on
the article explains well about the linkage between infra and growth i seem to agree that infra opens better oppurtinites for the development and develops a cycle of jobs and employment but one thing that must be seen by the latin american and also other developing countries is the complete economic and environmental feasibility of the project :-) eg if the govt. is setting up schools and he there are not enough teachers in the country then what is the benefit :) also taking international loans for infra development done no good .its like taking loan for a honeymoon:-).

Submitted by Luis on
In some of our countries, the government investment in infrastructure, sometimes hide money laundering. How can that the proven? If the president orders to "assign" multi-million projects to a company owned by a drug-trafficker (later on extradited to the U.S.), he MUST be getting money back under the table. Both, the president and the drug trafficker, get clean money, while investing dirty money. (Please, refer to Dominican Republic's President, Leonel Fernandez and Nelson Solano Guzman's case).

Submitted by Ignacio Lacasta on
Dear Mr. Schwarz, I’ve read with interest your post about investment in infrastructure and growth. But you have surprised me a lot with one comment: “… the application of Economic Impact Evaluation to the infrastructure sectors is in its infancy…”. Do you really think that investments are not evaluated to aim the objective of promoting economic growth? Lately I have been involved in some studies of roads in Latin America, and in all the cases we have carried out a complete Environmental Impact Assessment that included the consequences in economic and social fields… event they are focused in environment… After reading your post, I have done some research and I have found some tools that I think are interesting. For example, the IDB published a handbook concerning economic assessment of transportation projects (Manual de evaluación económica de proyectos de transporte. 2006). I suppose you have heard of it… I also suppose the World Bank is working on this issue: Can you recommend some other guides/handbooks or places where I can find some more information? Thanks in advance. Ignacio Lacasta Barcelona, Spain

Submitted by Jordan Z. Schwartz on
Thank you for the good post and the request for clarification! We differentiate between the benefit-cost analysis (also known as economic rate of return analysis) during project appraisal and the Impact Evaluation of projects. There are two main differences: 1) Future versus Past: Calculating the Economic Benfit-Cost Ratio of a potential project is a forward-looking assessment that estimates the economic returns that a particular investment might generate under a given social discount rate. It looks to the future and is built upon assumptions and forecasts about revenues and costs as well as external benefits (such as productivity gains or health improvements) which it attempts to value. Impact Evaluation, by contrast, is the measurement of the economic benefits that a real investment or policy intervention has achieved. It looks backwards, rather than foreward. 2) The second difference is methodological. For economic valuation during project appraisla, the IDB book that you reference is one excellent resource among many on the topic that international financial institutions and aid agencies have published. You can Google any sector (transport, water, energy, telecom, etc.) and "project appraisal" or "benefit-cost analysis" or "EIRR" and find a wide range of World Bank, regional development bank, OECD and donor agency publications on the mechanics of conducting this sort of analysis. For Impact Evaluation, the methodology is quite different. It grows out of epidemeology and laboratory work where there is a clear counterfactual, a control group and a study group, and randomization of the populations under study. This is why it has been hard to apply to infrastructure where the investments are large, lumpy and carefully pre-selected. How do you randomize a highway? Still, we are experimenting using difference-in-difference and geo-spatial information to find natural breaches in time or investment so as to proxy a counterfactual and the literature is growing slowly but steadily. A colleage in the Bank's research dept., David McKenzie, wrote a great blog on the topic with lots of references. Here is the link: http://blogs.worldbank.org/impactevaluations/node/636

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