Setting the scene: Infrastructure patterns in emerging markets. By Christian Daude and Ángel Melguizo

1. Domestic resource mobilization. Infrastructure
Setting the scene: Infrastructure patterns in emerging
markets
Christian Daude and Ángel Melguizo
Americas Desk
OECD Development Centre
Development Finance Network (DeFiNe)
Annual Meeting
Paris, 10-12 October 2010

2. Main messages
• Infrastructures are key for potential growth, development and
stabilization policies (e.g. G20 agenda)
Growth and inequality gaps Asia-Latin America explained by infrastructure
gaps – less spending, lower quality (Calderón and Servén, 2004b)
• Emerging economies: significant infrastructure gaps
• Latin America lags behind Asia and emerging Europe
• Significant differences across infrastructure types (basic, transport, energy
and telecommunications) and countries
• Fundamentals-observed levels (Balmaseda, Daude, Melguizo and Taft, 2010)
• Policy response
• Building better institutions (quality of bureaucracy, fiscal position)
• Improving regulation (in particular around public-private financing)
2

3. Setting priorities: infrastructure levels
Per capita telephone lines and Kilowatts pc and Urbanization
Income level, 2007 rate, 2006
14 10
9
Developed
13
8
Developed
Eastern Europe
Log lines/pop
Log Kws/pop
7 Eastern Europe
12 Asia LatAm
LatAm
6
Asia
5
11
4
10 3
0 1 2 3 4 5 20 40 60 80 100 120
Log GDP pc Urbanization ratio
Source: Balmaseda et al. (2010) Source: Balmaseda et al. (2010)
Income and population matter – but so do demographic (age profile),
social (urbanization) and economic (sector mix) variables.
3

4. Empirical model (Balmaseda et al., 2010)
Explanatory variables
- Per capita income (level
and squared)
- Socio- demographics
(urbanization, density) Predicted infrastructure
- Productive structure patterns (Km/area, KW pc,
(services and industry vs. pc lines)
agriculture) ‘Degree of
achievement’
(Observed levels/
Patterns)
Observed levels (Km/area,
KW pc, pc lines)
Predicted infrastructure patterns (for country i, in time t) can be
compared to actual levels, to estimate gaps and identify priorities.
4

5. Results (observed vs. predicted): Priorities
Observed / Predicted (%)
Paved roads Electricity Capacity Generation
280% 160%
Eastern Europe Eastern Europe
240% 140%
120%
200%
100%
160%
80%
LatAm MAX-MIN LatAm
120% Asia
60%
80% Asia
40%
40% LatAm MAX-min LatAm 20%
0% 0%
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Source: Balmaseda et al. (2010) Source: Balmaseda et al. (2010)
Asian and Lat. Am. challenges concentrated in Transport and Energy
infrastructure. In LAC, even the regional leader is below predicted levels.
5

6. Results (observed vs. predicted): Priorities
Observed / Predicted (%)
Telephone lines Access to improved water
450%
150%
400%
350%
130%
300% LatAm MAX-min
LatAm
250%
LatAm MAX-min 110%
200%
LatAm
150% Eastern Europe
Eastern Europe
90%
100%
50% Asia Asia
70%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Source: Balmaseda et al. (2010) Source: Balmaseda et al. (2010)
The situation in telecommunication and basic infrastructure is more
balanced. Some good practices may stem from LAC.
6

7. Results (gaps and fiscal balances): Domestic financing
Railways Electricity
6
6
4
4
e( ecg | X )
2
2
0
0
-2
-2
-.5 0 .5 1 1.5 -.5 0 .5 1 1.5
e( debtgdp | X ) e( debtgdp | X )
coef = -.52702326, (robust) se = .18359908, t = -2.87 coef = -.70912416, (robust) se = .09684161, t = -7.32
Source: Balmaseda et al. (2010)
Source: Balmaseda et al. (2010)
Lower public debt ratios are correlated with lower infrastructure gaps
• Fiscal consolidation have been traditionally based on investment cuts
(Calderón and Serven, 2004a, Martner and Tromben, 2005 for LAC)
• Public borrowing costs reflect (perceptions of) debt sustainability
7

8. Results (gaps and bureaucracy): Public administration
Paved roads Electricity
4
6
4
2
e( ecg | X )
2
0
0
-2
-2
-3 -2 -1 0 1 -3 -2 -1 0 1
e( bqual | X ) e( bqual | X )
coef = .45977591, (robust) se = .03161675, t = 14.54 coef = .57518505, (robust) se = .03843958, t = 14.96
Source: Balmaseda et al. (2010) Source: Balmaseda et al. (2010)
Better institutions (quality of bureaucracy) are correlated with lower
infrastructure gaps
• Need to have domestic resources and management capacity
• Governance, control of corruption, adequate regulation
8

9. Domestic resource mobilization. Infrastructure
Setting the scene: Infrastructure patterns in emerging
markets
Christian Daude and Ángel Melguizo
Americas Desk
OECD Development Centre
www.oecd.org/dev/americas
Development Finance Network (DeFiNe)
Annual Meeting
Paris, 10-12 October 2010