Determinants of public expenditure on infrastructure : transportation and communication

The authors empirically study factors that influence public investment in transportation and communication infrastructure. Using data for 1980-86 for 27 economies, they assess the influence of government objectives, the nature of the domestic economy, and the external assistance flow on public infrastructure spending. They find: a) per capita spending on infrastructure responds most strongly to changes in development level, urbanization rate, and labor force participation rate; b) spending is greater in countries with large foreign sectors and is positively influenced by sectoral imbalances between rural and urban areas; c) if total foreign savings flows increase, there is a small positive per capita spending response; d) with higher population densities, consolidated government spending declines although it rises initially; e) central budget spending is positively associated with improved institutional development, while consolidated budget is negatively associated; f) budget deficit size appears not to influence central budget spending but is positively associated with consolidated budget spending; g) greater outward orientation is positively associated with increased consolidated budget spending but seems to bear no relationship to central budget spending on infrastructure; and h) governments that are either not at all or extremely committed to alleviating poverty spend less on infrastructure. Governments with a limited commitment to poverty alleviation adopt strategies to increase the poor's productivity by investing in infrastructure. As the commitment intensifies, their strategy shifts to improving human capital or strengthening the social safety net, and funding for those social programs competes with funding for developing infrastructure.