The Social Rate of Return on Infrastructure Investments
The authors estimate social rates of return to electricity-generating capacity and paved roads, relative to the return on general capital, by examining the effect on aggregate output and comparing that effect with the costs of construction. They fi...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2000/07/436938/social-rate-return-infrastructure-investments http://hdl.handle.net/10986/19820 |
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okr-10986-19820 |
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oai_dc |
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Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
ACTUAL COSTS AGGREGATE OUTPUT BALANCED GROWTH BASE YEAR BASKET OF GOODS BENEFIT ANALYSIS BUSINESS CYCLE CAPACITY COSTS CAPITAL ACCUMULATION CAPITAL FLOWS CAPITAL GOODS CAPITAL-LABOR RATIO CLIMATIC CONDITIONS COAL COEFFICIENT CONSTANT ELASTICITY CONSTANT RETURNS CONSTANT RETURNS TO SCALE COST BENEFIT ANALYSIS DATA SET DEVELOPED WORLD DEVELOPING COUNTRIES DIMINISHING RETURNS ECONOMIC DEVELOPMENT ECONOMIC GEOGRAPHY ECONOMIC GROWTH ECONOMIC RATE OF RETURN ECONOMIES OF SCALE ELASTICITIES ELASTICITY ELECTRICITY EMPIRICAL EVIDENCE EMPLOYMENT ENDOGENOUS GROWTH EXCHANGE RATE EXPLANATORY POWER EXPLANATORY VARIABLE EXPLANATORY VARIABLES EXTERNALITIES FUNCTIONAL FORM GDP GDP DEFLATOR GROSS DOMESTIC PRODUCT GROWTH RATE GROWTH RATES HUMAN CAPITAL IMPLYING INCOME INCOME DISTRIBUTION INCOME LEVEL INCOME LEVELS INDUSTRIAL ECONOMIES INFRASTRUCTURE CAPITAL INFRASTRUCTURE INVESTMENT INFRASTRUCTURE PROVISION INVENTORY INVESTMENT BEHAVIOR LABOR COSTS LABOR INPUTS LEISURE LESS DEVELOPED COUNTRIES LOG INCOME LOW INCOMES MARGINAL PRODUCT MIDDLE INCOME COUNTRIES NATURAL MONOPOLY NEGATIVE NEGATIVE COEFFICIENT NEGATIVE COEFFICIENTS OIL POLICY RESEARCH POLITICAL ECONOMY POPULATION DENSITIES POSITIVE POSITIVE COEFFICIENT POSITIVE CORRELATION POSITIVE EXTERNALITIES POWER PARITY PRIVATE SECTOR PRIVATE SECTOR INVESTMENT PRODUCERS PRODUCTION FUNCTION PRODUCTION FUNCTIONS PRODUCTIVITY PROPERTY RIGHTS PUBLIC ECONOMICS PUBLIC EXPENDITURES PUBLIC GOODS PUBLIC INFRASTRUCTURE PUBLIC PROVISION PUBLIC SECTOR PURCHASING POWER ROADS SAVINGS SAVINGS RATES SKILLED LABOR TAX TIME SERIES TOTAL FACTOR PRODUCTIVITY TRANSPORT |
| spellingShingle |
ACTUAL COSTS AGGREGATE OUTPUT BALANCED GROWTH BASE YEAR BASKET OF GOODS BENEFIT ANALYSIS BUSINESS CYCLE CAPACITY COSTS CAPITAL ACCUMULATION CAPITAL FLOWS CAPITAL GOODS CAPITAL-LABOR RATIO CLIMATIC CONDITIONS COAL COEFFICIENT CONSTANT ELASTICITY CONSTANT RETURNS CONSTANT RETURNS TO SCALE COST BENEFIT ANALYSIS DATA SET DEVELOPED WORLD DEVELOPING COUNTRIES DIMINISHING RETURNS ECONOMIC DEVELOPMENT ECONOMIC GEOGRAPHY ECONOMIC GROWTH ECONOMIC RATE OF RETURN ECONOMIES OF SCALE ELASTICITIES ELASTICITY ELECTRICITY EMPIRICAL EVIDENCE EMPLOYMENT ENDOGENOUS GROWTH EXCHANGE RATE EXPLANATORY POWER EXPLANATORY VARIABLE EXPLANATORY VARIABLES EXTERNALITIES FUNCTIONAL FORM GDP GDP DEFLATOR GROSS DOMESTIC PRODUCT GROWTH RATE GROWTH RATES HUMAN CAPITAL IMPLYING INCOME INCOME DISTRIBUTION INCOME LEVEL INCOME LEVELS INDUSTRIAL ECONOMIES INFRASTRUCTURE CAPITAL INFRASTRUCTURE INVESTMENT INFRASTRUCTURE PROVISION INVENTORY INVESTMENT BEHAVIOR LABOR COSTS LABOR INPUTS LEISURE LESS DEVELOPED COUNTRIES LOG INCOME LOW INCOMES MARGINAL PRODUCT MIDDLE INCOME COUNTRIES NATURAL MONOPOLY NEGATIVE NEGATIVE COEFFICIENT NEGATIVE COEFFICIENTS OIL POLICY RESEARCH POLITICAL ECONOMY POPULATION DENSITIES POSITIVE POSITIVE COEFFICIENT POSITIVE CORRELATION POSITIVE EXTERNALITIES POWER PARITY PRIVATE SECTOR PRIVATE SECTOR INVESTMENT PRODUCERS PRODUCTION FUNCTION PRODUCTION FUNCTIONS PRODUCTIVITY PROPERTY RIGHTS PUBLIC ECONOMICS PUBLIC EXPENDITURES PUBLIC GOODS PUBLIC INFRASTRUCTURE PUBLIC PROVISION PUBLIC SECTOR PURCHASING POWER ROADS SAVINGS SAVINGS RATES SKILLED LABOR TAX TIME SERIES TOTAL FACTOR PRODUCTIVITY TRANSPORT Canning, David Bennathan, Esra The Social Rate of Return on Infrastructure Investments |
| relation |
Policy Research Working Paper;No. 2390 |
| description |
The authors estimate social rates of
return to electricity-generating capacity and paved roads,
relative to the return on general capital, by examining the
effect on aggregate output and comparing that effect with
the costs of construction. They find that both types of
infrastructure capital are highly complementary with other
physical capital and human capital, but have rapidly
diminishing returns if increased in isolation. The
complementarities on the one hand, and diminishing returns
on the other, point to the existence of an optimal mix of
capital inputs, making it very easy for a country to have
too much - or too little - infrastructure. For policy
purposes, the authors compare the rate of return for
investing in infrastructure with the estimated rate of
return to capital. The strong complementarity between
physical and human capital, and the lower prices of
investment goods in industrial economies, means that the
rate of return to capital as a whole is just as high in rich
countries as in the poorest countries but is highest in the
middle-income (per capita) countries. In most countries the
rates of return to both electricity-generating capacity and
paved roads are on a par with, or lower than, rates of
return on other forms of capital. But in a few countries
there is evidence of acute shortages of
electricity-generating capacity and paved roads and,
therefore, excess returns to infrastructure investment.
Excess returns are evidence of suboptimal investment that,
in the case of paved roads, appears to follow a period of
sustained economic growth during which road-building stocks
have lagged behind investments in other types of capital.
This effect is accentuated by the fact that the relative
costs of road construction are lower in middle-income
countries than in poorer and richer countries. As a rule, a
tendency to infrastructure shortages - signaled by higher
social rates of return to paved roads or
electricity-generating capacity than to other forms of
capital - is symptomatic of certain income classes of
developing countries: electricity capacity in the poorest,
paved roads in the middle-income group. To the extent that
such high rates of return are not detected by microeconomic
cost-benefit analysis, they suggest macroeconomic
externalities associated with infrastructure. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Canning, David Bennathan, Esra |
| author_facet |
Canning, David Bennathan, Esra |
| author_sort |
Canning, David |
| title |
The Social Rate of Return on Infrastructure Investments |
| title_short |
The Social Rate of Return on Infrastructure Investments |
| title_full |
The Social Rate of Return on Infrastructure Investments |
| title_fullStr |
The Social Rate of Return on Infrastructure Investments |
| title_full_unstemmed |
The Social Rate of Return on Infrastructure Investments |
| title_sort |
social rate of return on infrastructure investments |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2000/07/436938/social-rate-return-infrastructure-investments http://hdl.handle.net/10986/19820 |
| _version_ |
1764441483818041344 |
| spelling |
okr-10986-198202021-04-23T14:03:46Z The Social Rate of Return on Infrastructure Investments Canning, David Bennathan, Esra ACTUAL COSTS AGGREGATE OUTPUT BALANCED GROWTH BASE YEAR BASKET OF GOODS BENEFIT ANALYSIS BUSINESS CYCLE CAPACITY COSTS CAPITAL ACCUMULATION CAPITAL FLOWS CAPITAL GOODS CAPITAL-LABOR RATIO CLIMATIC CONDITIONS COAL COEFFICIENT CONSTANT ELASTICITY CONSTANT RETURNS CONSTANT RETURNS TO SCALE COST BENEFIT ANALYSIS DATA SET DEVELOPED WORLD DEVELOPING COUNTRIES DIMINISHING RETURNS ECONOMIC DEVELOPMENT ECONOMIC GEOGRAPHY ECONOMIC GROWTH ECONOMIC RATE OF RETURN ECONOMIES OF SCALE ELASTICITIES ELASTICITY ELECTRICITY EMPIRICAL EVIDENCE EMPLOYMENT ENDOGENOUS GROWTH EXCHANGE RATE EXPLANATORY POWER EXPLANATORY VARIABLE EXPLANATORY VARIABLES EXTERNALITIES FUNCTIONAL FORM GDP GDP DEFLATOR GROSS DOMESTIC PRODUCT GROWTH RATE GROWTH RATES HUMAN CAPITAL IMPLYING INCOME INCOME DISTRIBUTION INCOME LEVEL INCOME LEVELS INDUSTRIAL ECONOMIES INFRASTRUCTURE CAPITAL INFRASTRUCTURE INVESTMENT INFRASTRUCTURE PROVISION INVENTORY INVESTMENT BEHAVIOR LABOR COSTS LABOR INPUTS LEISURE LESS DEVELOPED COUNTRIES LOG INCOME LOW INCOMES MARGINAL PRODUCT MIDDLE INCOME COUNTRIES NATURAL MONOPOLY NEGATIVE NEGATIVE COEFFICIENT NEGATIVE COEFFICIENTS OIL POLICY RESEARCH POLITICAL ECONOMY POPULATION DENSITIES POSITIVE POSITIVE COEFFICIENT POSITIVE CORRELATION POSITIVE EXTERNALITIES POWER PARITY PRIVATE SECTOR PRIVATE SECTOR INVESTMENT PRODUCERS PRODUCTION FUNCTION PRODUCTION FUNCTIONS PRODUCTIVITY PROPERTY RIGHTS PUBLIC ECONOMICS PUBLIC EXPENDITURES PUBLIC GOODS PUBLIC INFRASTRUCTURE PUBLIC PROVISION PUBLIC SECTOR PURCHASING POWER ROADS SAVINGS SAVINGS RATES SKILLED LABOR TAX TIME SERIES TOTAL FACTOR PRODUCTIVITY TRANSPORT The authors estimate social rates of return to electricity-generating capacity and paved roads, relative to the return on general capital, by examining the effect on aggregate output and comparing that effect with the costs of construction. They find that both types of infrastructure capital are highly complementary with other physical capital and human capital, but have rapidly diminishing returns if increased in isolation. The complementarities on the one hand, and diminishing returns on the other, point to the existence of an optimal mix of capital inputs, making it very easy for a country to have too much - or too little - infrastructure. For policy purposes, the authors compare the rate of return for investing in infrastructure with the estimated rate of return to capital. The strong complementarity between physical and human capital, and the lower prices of investment goods in industrial economies, means that the rate of return to capital as a whole is just as high in rich countries as in the poorest countries but is highest in the middle-income (per capita) countries. In most countries the rates of return to both electricity-generating capacity and paved roads are on a par with, or lower than, rates of return on other forms of capital. But in a few countries there is evidence of acute shortages of electricity-generating capacity and paved roads and, therefore, excess returns to infrastructure investment. Excess returns are evidence of suboptimal investment that, in the case of paved roads, appears to follow a period of sustained economic growth during which road-building stocks have lagged behind investments in other types of capital. This effect is accentuated by the fact that the relative costs of road construction are lower in middle-income countries than in poorer and richer countries. As a rule, a tendency to infrastructure shortages - signaled by higher social rates of return to paved roads or electricity-generating capacity than to other forms of capital - is symptomatic of certain income classes of developing countries: electricity capacity in the poorest, paved roads in the middle-income group. To the extent that such high rates of return are not detected by microeconomic cost-benefit analysis, they suggest macroeconomic externalities associated with infrastructure. 2014-08-28T17:47:33Z 2014-08-28T17:47:33Z 2000-07 http://documents.worldbank.org/curated/en/2000/07/436938/social-rate-return-infrastructure-investments http://hdl.handle.net/10986/19820 English en_US Policy Research Working Paper;No. 2390 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |