How does infrastructure contribute to job creation?

The Infra4Dev Conference, jointly organized by the World Bank and the International Growth Centre on March 3-4, 2022, brought together the academic and policy-making community to exchange knowledge and insights regarding the roles that infrastructure can play in catalyzing development. The Lightning Talk Sessions showcased emerging research on jobs, trade, and sustainable growth.

There is increasing understanding of how investments in transport, energy and Information and Communications Technology promote economic activity and job creation through a variety of channels. To begin with, investments in transport and digital connectivity increase access to markets due to reduced transport and transaction costs, as well as improving the ability of workers to find jobs  (through digital technologies) and access them (via transport services). At the same time, access to technology, reliable and affordable energy and cheaper inputs resulting from investments in transport and energy increase labor productivity. Finally, infrastructure investments affect the process of transformation of economies with jobs moving from low-productivity agriculture to other sectors.

The recent Infra4Dev Conference showcased some of the most exciting emerging research on infrastructure and employment impacts. In case you missed the conference, this blog will give you a brief round-up of some of the most interesting results from the Lightning Talks on Infrastructure and Job Creation and other key papers presented:
 

• Road Quality and Local Economic Development: Evidence from Indonesia’s Highways by Alexander Rothenberg, Syracuse University

While it is known that investment in roads can lead to increased economic activity and job creation, the impact of road maintenance expenditure is not so well understood. This paper provides evidence of how changes in road quality resulting from provincial maintenance activities impact local economic development outcomes in Indonesia over the period 1990-2007. Results reveal that preserving higher road quality through adequate maintenance expenditure leads to job creation in the manufacturing sector mostly by expanding the number of new firms, particularly in initially under-populated areas.  This is also reflected in household consumption and income, which both increased by 0.4% overall. Further, improved road quality promotes occupational shift from the informal sector to jobs in manufacturing, but also results in improved profit for those who stay in agriculture.

• Urban Transit Infrastructure: Spatial Mismatch and Labor Market Power by Roman Zarate, World Bank

Urban transit infrastructure projects involve large investments, but their total benefits are hard to measure, due to lack of suitable data. This paper provides estimates of the effect of a large subway expansion on local labor market outcomes in Santiago de Chile, based on unusually detailed information on the evolving employment conditions of individual workers, following the opening of 84 new subway stations. Following subway expansion, workers that experience an improvement in market access commute longer distances and earn higher wages, even without changing their jobs. Firms start to hire workers who live further away, leading to spatial convergence in earnings. Overall, welfare increases by 50% after the subway expansion, with workers gaining more than their employers due to greater negotiating power.  This highlights the critical impact that urban transit systems have on employment and livelihoods.

• Transport, Urban Labor Markets, and Women's Mobility: Experimental Evidence from Urban Pakistan by Kate Vyborny, Duke University

Urban labor markets in Asian countries are characterized by low female participation. Studies show that, women are less likely than men to participate in the labor market, even at relatively high levels of education. This paper investigates the constraints on female labor force participation due to limited safe mobility using a randomized experiment in Lahore, Pakistan. A sample of men and women were randomly assigned to different commuter transportation options. This paper finds that, reducing physical mobility constraints has a large impact on job search for women, with women receiving a transport offer of 50% applying for jobs four times more compared to those that do not.  Even women that were not initially looking for a job, increase job searches by 10 percentage points. Women were particularly responsive to the offer of women-only transport options, suggesting that safety and social acceptability, rather than simply cost, are key constraints.

• Local Infrastructure Investment and the Private Sector: Evidence from a Randomized Trial by Craig McIntosh, UC San Diego

Public sector investment in local municipal infrastructure (such as street paving, lighting, and drainage) can play an important role in supporting growth of the private sector in urban environments. This paper investigates the effects of the gentrification induced by the “Programa Hábitat”, an infrastructure investment initiative carried out between 2008-2010 in urban Mexican neighborhoods. To gauge the response, the paper uses business censuses data for 2008, 2013 and 2018, and unusually combines randomized variation in local infrastructure investment with data on the growth of private-sector firms. The results uncover substantial effects, including increases in wages and employment, as well as a 7% increase in business profitability, particularly in the services sector. In addition, treatment areas experience more turnover of enterprises, including firm death and creation of more productive new firms. There are virtually no spillovers and benefits are tightly localized in treatment neighborhoods.

• Infrastructure and Structural Change in the Horn of Africa by Mathilde Lebrand, World Bank

Development happens through structural transformation of the economies. As nations get richer, the share of those employed in agriculture drops steeply. Employment in agriculture has decreased in Horn of Africa countries but remains very high in Ethiopia and Somalia. This paper first investigates the role that infrastructure (electricity, transport, internet) has played in this process of transformation of economies in the past decades. The paper finds that infrastructure has played a significant role in the process of transformation of economies away from low-productivity agriculture and toward manufacturing and services in Horn of Africa countries. Bundling road investments with access to electricity has led to a much bigger impact on structural transformation of the economies. The paper then quantifies the overall welfare benefits of new infrastructure and trade facilitation investments along regional corridors using a model. Benefits from future investments in regional corridors in the Horn of Africa would be maximized when complemented with increased electricity coverage and smaller border delays.  The magnitude of the benefits varies a lot both within and across countries, depending on their initial geographic and economic characteristics (population, sectoral productivity, proximity to large markets) and their regional trade comparative advantage.

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You can access to all the previous Infra4Dev blogs here.