What Have We Learned about the Effectiveness of Infrastructure Investment as a Fiscal Stimulus? A Literature Review
Since the Great Depression of the 1930s, and through the more recent Asian Crisis of 1997 and Great Recession of 2008/09, governments have experimented with Keynesian style fiscal stimulus to support employment and accelerate economic recovery. The...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/undefined/178841633526651703/What-Have-We-Learned-about-the-Effectiveness-of-Infrastructure-Investment-as-a-Fiscal-Stimulus-A-Literature-Review http://hdl.handle.net/10986/36347 |
| Summary: | Since the Great Depression of the
1930s, and through the more recent Asian Crisis of 1997 and
Great Recession of 2008/09, governments have experimented
with Keynesian style fiscal stimulus to support employment
and accelerate economic recovery. The effectiveness of these
policies depends on the size of fiscal multipliers. A large
body of economic literature has estimated such multipliers,
with gradually increasing precision, due to econometric
improvements and better ways to identify fiscal impulses.
Overall, the largest multipliers are found to be associated
with public investment, as opposed to other types of
spending. Such public investment multipliers are typically
below one in the short run, but studies with multi-year
horizons suggest that values higher than unity can be
attained over time. The size of multipliers is sensitive to
economic conditions. During recessions, and periods of high
unemployment, transfer payments appear sometimes to offer
higher multipliers than public investment. An important
exception is when fiscal and monetary policies are closely
coordinated and interest rates approach zero, conditions
that provide the strongest evidence for the efficacy of
public investment multipliers. Other institutional factors
also play a crucial role in determining the size of the
public investment multiplier, in particular the country’s
absorptive capacity, and the selection of high-quality
shovel ready projects. However, there is limited empirical
evidence available on the magnitude of fiscal multipliers in
developing country settings, or for infrastructure sectors
or subsectors specifically. The few studies available
suggest that certain types of green infrastructure (energy
efficiency, solar energy, and so forth) may bring employment
benefits in the short run, while innovative digital
infrastructure may yield longer-run benefits for economic
growth. The relevance of these findings to the current
COVID-19 crisis is explored. |
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