Are all infrastructure investments created equal? The case of Portugal

Alfredo M. Pereira ,Rui M. Pereira

doi:10.24294/jipd.v2i1.145

Home - JIPD - Volume 2 - Issue 1

Submit to JIPD

Journal Browser

Volume | Year

Issue

• Current lssue

View All

News and Announcements

View All

Are all infrastructure investments created equal? The case of Portugal

Alfredo M. Pereira

Rui M. Pereira

Journal of Infrastructure Policy and Development 2018, 2(1), 67-86; https://doi.org/10.24294/jipd.v2i1.145

Submitted：20 Dec 2017

Accepted：27 Dec 2017

Published：09 Jan 2018

Download PDF(627.98KB)

XML

Abstract

Using a newly developed data set, we analyze the effects of infrastructure investment on economic performance in Portugal. A vector-autoregressive approach estimates the elasticity and marginal products of twelve types of infrastructure investment on private investment, employment, and output. We find that the largest long-term accumulated effects come from investments in railroads, ports, airports, health, education, and telecommunications. For these infrastructures, the output multipliers suggest that these investments pay for themselves through additional tax revenues. For investments in ports, airports and education infrastructures, the bulk of the effects are short-term demand-side effects, while for railroads, health, and telecommunications, the impact is mostly of a long-term and supply-side nature. Finally, investments in health and airports exhibit decreasing marginal returns, with railroads, ports, and telecommunications being relatively stable. In terms of the other infrastructure assets, the economic effects of investments in municipal roads, electricity and gas, and refineries are insignificant, while investments in national roads, highways, and waste and waste water have positive economic effects but too small to improve the public budget. Clearly, from a policy perspective, not all infrastructure investments in Portugal are created equal.

Keywords

References

Aschauer DA (1989a). “Is public expenditure productive?” Journal of Monetary Economics, 23(2): 177–200. doi: 10.1016/0304-3932(89)90047-0.

Aschauer DA (1989b). “Does public capital crowd out private capital?” Journal of Monetary Economics, 24(2): 171–188. doi: 10.1016/0304-3932(89)90002-0.

Baunsgaard T, Mineshima A and Poplawski-Ribeiro M, et al. (2014). “Fiscal multipliers”. In: Cottarelli C, Gerson P and Senhadji A (eds.). Post-Crisis Fiscal Policy. Cambridge, MA, USA: MIT Press.

Blanchard O and Perotti R (2002). “An empirical characterization of the dynamic effects of changes in government spending and taxes on output”. Quarterly Journal of Economics, 117(4): 1329–1368. doi: 10.1162/00335530232 0935043.

Bom PRD and Ligthart JE (2014). “What have we learned from three decades of research on the productivity of public capital?” Journal of Economic Surveys, 28(5): 889–916. doi: 10.1111/joes.12037.

Christiano LJ, Eichenbaum M and Evans C (1996). “The effects of monetary policy shocks: Evidence from the flow of funds”. Review of Economics and Statistics, 78(1): 16–34. doi: 10.2307/2109845.

Christiano LJ, Eichenbaum M and Evans C (1999). “Monetary policy shocks: What have we learned and to what end?” In: Taylor JB and Woodford M (eds.). Handbook of Macroeconomics, Vol. 1A. Amsterdam, The Netherlands: North-Holland.

Conselho das Finanças Públicas (CFP) (2016). “Análise da proposta de Orçamento do Estado para 2016” [Portuguese] (An analysis of the Public Budget Proposal for 2016). Note No. 2. Lisbon, Portugal: CFP.

Council of Economic Advisers (2016). Economic Report of the President. Washington, DC, USA: Council of Economic Advisers, The White House.

European Central Bank (ECB) (2016). “Public investment in Europe”. ECB Economic Bulletin. 2(2016): 1–14.

European Commission (2014a). “Infrastructures in the EU: Developments and impact on growth”. European Economy Occasional Papers 203. Brussels, Belgium: Directorate-General for Economic and Financial Affairs.

European Commission (2014b). An Investment Plan for Europe. Brussels, Belgium: European Commission.

European Commission (2016). “The economic adjustment programme for Portugal, 2011–2014”. European Economy Occasional Papers 202. Brussels, Belgium: Directorate-General for Economic and Financial Affairs.

Gramlich E (1994). “Infrastructure investment: A review essay”. Journal of Economic Literature, 32(3): 1176–1196.

International Monetary Fund (IMF) (2014). World Economic Outlook: Legacies, Clouds, Uncertainties. Washington, DC, USA: IMF.

International Monetary Fund (IMF) (2015). Making Public Investment More Efficient. Washington, DC, USA: IMF

Ivanov V and Kilian L (2005). “A practitioner’s guide to lag order selection for VAR impulse response analysis”. Studies in Nonlinear Dynamics and Econometrics, 9(1): Article 2. doi: 10.2202/1558-3708.1219.

Kamps C (2005). “The dynamic effects of public capital: VAR evidence for 22 OECD countries”. International Tax and Public Finance, 12(4): 533–558. doi: 10.1007/s10797-005-1780-1.

Kilian L (1998). “Small-sample confidence intervals for impulse response functions”. Review of Economics and Statistics, 80(2): 218–230. doi: 10.1162/003465398557465.

Leduc S and Wilson D (2012). “Roads to prosperity or bridges to nowhere? Theory and evidence on the impact of public infrastructure investment”. NBER Macroeconomics Annual, 27(1): 89–142. doi: 10.1086/669173.

Munnell A (1992). “Policy watch: Infrastructure investment and economic growth”. Journal of Economic Perspectives, 6(4): 189–198. doi: 10.1257/jep.6.4.189.

Pereira AM (2000). “Is all public capital created equal?” Review of Economics and Statistics, 82(3): 513–518. doi: 10.1162/rest.2000.82.3.513.

Pereira AM (2001). “On the effects of public investment on private investment: What crowds in what?” Public Finance Review, 29(1): 3-25. doi: 10.1177/109114210102900101.

Pereira AM and Andraz JM (2005). “Public investment in transportation infrastructures and economic performance in Portugal”. Review of Development Economics, 9(2): 177–196. doi: 10.1111/j.1467-9361.2005.00271.x.

Pereira AM and Andraz JM (2011). “On the economic and fiscal effects of investment in road infrastructure in Portugal”. International Economic Journal, 25(3): 465–492. doi: 10.1080/10168737.2011.607256.

Pereira AM and Andraz JM (2013). “On the economic effects of public infrastructure investment: A survey of the international evidence”. Journal of Economic Development, 38(4): 1–37.

Pereira AM and Pereira RM (2014). “On the effects of infrastructure investment on economic performance in Ontario”. Mimeo.

Pereira AM and Pereira RM (2016). Investimentos em Infra-estruturas em Portugals [Portuguese]. Lisbon, Portugal: Fundação Francisco Manuel dos Santos.

Ramey V (2011). “Can government purchases stimulate the economy?” Journal of Economic Literature, 49(3): 673–685. doi: 10.1257/jel.49.3.673.

Romp W and de Haan J (2007). “Public capital and economic growth: A critical survey”. Perspektiven der Wirtschaftspolitik, 8(S1): 6–52. doi: 10.1111/j.1468-2516.2007.00242.x.

Rudebusch GD (1998). “Do measures of monetary policy in a VAR make sense?” International Economic Review, 39(4): 907–931. doi: 10.2307/2527344.

Sims CA and Zha T (1999). “Error bands for impulse responses”. Econometrica, 67(5): 1113–1155. doi: 10.1111/1468- 0262.00071.

World Bank (2016). Global Economic Prospects: Divergences and Risks. Washington, DC, USA: World Bank Group.

World Bank (2017). Global Economic Prospects: Weak Investment in Uncertain Times. Washington, DC, USA: World Bank Group.

Previous
article in this issue

Next
article in this issue