Public Investment in strongInfrastructurestrong and Productivity Growth.pdfVIP

Public Investment in Infrastructure and Productivity Growth: Evidence from the Venezuelan Manufacturing Sector José Pineda Corporación Andina de Fomento Francisco Rodríguez Department of Economics and Latin American Studies Wesleyan University 1. Introduction How important is public investment in infrastructure for development? Answers to this question vary broadly among economists. A long tradition in the study of development gives the provision of a broad array of public goods and services, among them the provision of infrastructure, a central role in the solution of collective action problems and in the generation of the necessary conditions for self-sustaining economic growth to be in place. An alternative view, however, has emphasized the scope for rent-seeking in the determination of public investment, and the resulting low social returns to a number of investment projects carried out by developing country governments. Determining the quantitative significance of the efficiency effects from infrastructure investment is a key question for the design of adjustment policies in developing countries. Governments enacting fiscal adjustments have to face the question of how much to cut public investment vis-à-vis current expenditures. Cutting current expenditures often entails laying off public sector workers and cutting the operating expenditures of the existing state structure. As such, it can be a politically complex decision. In contrast, reducing public investment projects may simply entail not undertaking new investment projects that