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Infrastructure, economics, and a sustainable future: A Chief Economist's perspective

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Infrastructure, Economics, and a Sustainable Future: A Chief Economist's Perspective The Chief Economist for Infrastructure Office holds the crucial mission of providing cutting-edge knowledge on how infrastructure investments are fundamental for a positive development impact. Photo credit: World Bank.

In the 1990s, I embarked on a journey that took me from the classrooms of Paris to the dusty countryside of Paraguay. Little did I know then that my diverse experiences, from peddling goods door-to-door to advising governments, would shape my role as an economist specializing in infrastructure and development. Now, as the Chief Economist for Infrastructure at the World Bank, I stand at the intersection of a complex global landscape. 

Our world faces a myriad of challenges – a temporary setback in poverty reduction, an accelerating climate crisis, the lingering effects of the Covid-19 pandemic, geopolitical conflicts, and resurgent inflation. Amidst this intricacy, the Chief Economist for Infrastructure Office holds the crucial mission of providing cutting-edge knowledge on how infrastructure investments are fundamental for building a poverty-free, sustainable planet. Join me as we explore the key themes that will dominate the agenda of our office: 

Advancing infrastructure research for informed policy decisions 

We often assume that infrastructure investments are vital for development and poverty reduction. Numerous studies have explored their impact across various sectors, from transportation to energy and digital infrastructure. This research covers aspects like investment timing, location, contract terms, financing methods, and more. A key lesson from this body of work is that positive development impacts are not guaranteed and depend on project specifics. This underscores the importance of infrastructure research at the World Bank to provide policymakers with accurate information on what works and why, particularly when facing tough trade-offs due to fiscal constraints. 

To help clarify these trade-offs, our office should be a catalyzer for the broader network of colleagues who also do analytical work on these issues within the bank. Beyond that, we are ideally placed to call for and stimulate outside expertise in the academic world, enrolling leading researchers in our knowledge work, and organizing high-level conferences such as the Infra4dev Conference – where frontier research is presented, and future directions of foremost policy relevance are discussed. 

Getting more bang for the buck: infrastructure rates of return

An important question is the social return on various infrastructure projects, crucial for guiding policy choices in resource-constrained environments. Unfortunately, we lack up-to-date data on this, relying on outdated figures and methodologies from the 1990s.

The Chief Economist for Infrastructure Office is taking steps to address this issue with better, more accurate information on both the link between infrastructure availability and growth, and the existing stocks of physical capital. On the methodological side, we have compiled thousands of estimates from studies using very granular firm and household data and aim at leveraging recent theoretical contributions to derive aggregate figures from very accurate micro-studies.  All of this will enable better-informed regional and sectoral infrastructure policy decisions, along with readily available research compacts showcasing how specific project types – from intra-cities and international corridors to Bus Rapid Transit (BRT) systems – impact development outcomes, shape cities, affect different productive sectors, and may ultimately change the life of their citizens for the better. 

On the other hand, the rapidly evolving industrial organization and technological aspects of infrastructure sectors require a reevaluation of regulation and competition policy. There's a need to delve deeper into how regulatory frameworks affect outcomes and provide specific steps for improvement. For us, it is crucial to embrace and build on the new knowledge on regulation for improved policy advice and project structuring.  

Private capital mobilization – Why is it so difficult? 

Private capital is vital to address our substantial annual spending needs outlined by the Development Committee paper. The World Bank's push to leverage private contributions is commendable, but reaching its 25% lending goal remains a challenge. The recent Private Sector Investment Lab launch, involving finance industry leaders, is a significant step towards understanding private infrastructure investment constraints.   

On the research side, I want to highlight two important gaps that must be filled: 

  1. First, we must analyze project-level data from us and other MDBs systematically, gaining insights into leverage variations across projects, sectors, and economic contexts. This is no easy task, but economics provides tools to extract the causal information that can then inform policy by highlighting the channels that favor more and better private sector engagement. It is also a reality check, because it can help set attainable expectations in each specific case. 
  2. Second, while innovative financing tools have been the focus, we've overlooked a crucial aspect: infrastructure repayment depends on cost recovery through user fees and taxpayer funds. To attract private financing, we must explore innovative funding approaches, like land value capture, redirecting infrastructure-created value toward project sustainability. This calls for unconventional solutions, such as tax policy reforms and land registry enhancements.  

Infrastructure and climate change – What about the hard stuff? 

Addressing climate and environmental challenges through infrastructure policies is paramount. Our sectors are no longer isolated; they are intertwined with climate action.  The transition to electric vehicles relies on clean energy access and charging networks, involving critical minerals and logistical challenges. Digitalization offers efficiency gains but may increase energy demands, creating policy complexities. 

Moreover, the impact of infrastructure on greenhouse gas emissions is often overlooked. Materials like cement, steel, and plastic, used in roads, energy lines, and more, contribute significantly to global emissions. Elevating infrastructure in emerging countries to developed levels would exceed our carbon budget. Hence, transitioning to eco-friendly materials like green steel and cement is no longer optional but an urgent necessity. Innovative approaches, such as hydrogen production with carbon capture and storage, hold promise but require further exploration. I see this as an area where major contributions can be made in understanding the economics of the process. 

Data – Garbage in, garbage out 

Data quality is the bedrock of effective research and policy advice. The World Bank recognizes the need to revamp its data policy, a commitment underscored by a recent productive data retreat.  Reflecting on my own experiences with World Bank data, I recall that, 15 years ago, I relied on the World Development Indicators website for infrastructure-related matters. Today, the data landscape has transformed dramatically, with the emergence of multiple sources, including experimental data, detailed administrative records, satellite information, and big data. 

To maintain relevance, the World Bank must clarify its comparative advantage in the evolving data landscape. While there are over 80 data platforms within the institution, integration, curation, and quality assurance are critical initial steps. Additionally, the World Bank can serve as a data broker, facilitating secure access to external data sources. This transformation also demands continuous staff learning as data complexities evolve. It all begins with identifying well-defined policy research questions, as there is no such thing as neutral data—relevance is born from precise alignment with research objectives. 

In conclusion, these are only some of the big questions that call for a combination of intellectual rigor, frontier methodologies, and good quality data, to contribute to the bank knowledge agenda. At the onset of my tenure as the World Bank's Chief Economist for Infrastructure, I could not dream of a more exciting challenge. 

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Stéphane Straub

Chief Economist, Infrastructure Practice Group, World Bank

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