Determinants of Public Expenditure on Infrastructure: Transportation and Communication

October 1996 Governments that are not committed to alleviating poverty - or that are extremely committed to it - spend less from the central budget on infrastructure. Governments with only limited commitment to alleviating poverty adopt strategies to increase the productivity of the poor by investing in infrastructure. But as their commitment intensifies, their strategy shifts to improving human capital or strengthening the social safety net, and funding for social programs competes with funding for infrastructure. Randolph, Bogetic, and Heffley empirically study factors that influence public investment in transportation and communication infrastructure. Using pooled cross-national and time-series data for 1980­86 for 27 low- and middle-income economies, they assess the influence on public infrastructure spending of a government's objectives (especially its commitment to poverty alleviation), the nature of the domestic economy, and the flow (and composition) of external assistance. Their findings: ° Per capita spending on infrastructure responds most strongly to changes in the level of development, the urbanization rate, and the labor force participation rate. ° Spending is greater in countries with large foreign sectors and is positively influenced by sectoral imbalances between rural and urban areas (reflected in migration rates). Moreover, as the stock of infrastructure increases, so does per capita spending on it. ° If total flows of foreign savings increase, there is a small positive response in per capita spending. The composition of foreign savings matters: when commercial bank flows represent proportionately more of such flows, infrastructure spending is greater. ° With higher population densities, consolidated government spending declines. Central government spending increases initially, but decreases as population densities rise. ° Central budg...