Can infrastructure investments generate growth?
World Bank research has examined this issue from several angles. Recent research shows that every 10 percent increase in infrastructure provision increases output by approximately 1 percent in the long term. Improved infrastructure quality accounted for 30 percent of growth attributed to infrastructure in developing countries. The impact on growth varies by country. In Egypt, for example, an increase in infrastructure expenditures from 5 to 6 percent of Gross Domestic Product would raise the annual GDP per capita growth rate by half a percent in a decade’s time.
For the World Bank Chief Economist Justin Lin, a global infrastructure initiative is needed as a growth-lifting strategy. Scaling up infrastructure investment in developing countries can help generate a virtuous cycle in support of a global recovery. These investments require capital goods, many of which are produced in advanced economies, and can help support their manufacturing sector. In addition, as growth in developing countries is lifted, their demand for products produced in advanced economies would increase further, possibly triggering a virtuous circle of mutually reinforcing growth.
A strategy for global growth must fully engage developing countries that have been the engine of global demand. Channeling surplus global savings to growth-enhancing investments in developing countries, especially in infrastructure, would promote development but also have positive spillovers for global growth and rebalancing.
One of the key constraints to research on infrastructure and growth is the lack of available data, including on volumes, quality of assets, and public spending. World Bank economists are working to expand databases on infrastructure stock and spending, disaggregated by source (public or private) and by sector, for Sub-Saharan Africa, Latin America and South Asia.