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The Global Infrastructure Investment Challenge

Paper Session

Saturday, Jan. 6, 2018 8:00 AM - 10:00 AM

Pennsylvania Convention Center, 201-C
Hosted By: American Economic Association
  • Chair: Peter Henry, New York University

The Global Infrastructure Challenge

Anusha Chari
,
University of North Carolina-Chapel Hill
Peter Blair Henry
,
New York University

Abstract

Almost a decade after the global financial crisis, the growth rate of global output remains below its pre-crisis trend and is declining. Investment in infrastructure could stimulate growth by raising productivity, the expected future growth rate of potential output, and prospective returns on a variety of capital investments. Indeed, the estimated requirement for global infrastructure investment is about 4 trillion dollars a year in comparison to the actual 3 trillion dollars per annum that is actually been taking place. While the infrastructure investment gap in the United States has received the most attention, the greatest gap (and hence opportunity for efficiency gains) lies in the developing countries of the world, where 1.7 million workers will join the labor force each month from now until 2030.

Urbanization and Infrastructure

Paul Romer
,
World Bank and New York University

Abstract

In the next 50 years roughly 2.9 billion people will move into cities from rural areas. Because virtually all of this net migration will take place in emerging economies, policies that impact the productivity of workers who move to urban areas in developing countries will greatly impact global growth. While good jobs—ones in which workers learn more and experience faster increases in productivity—arise naturally in large urban areas with both a local platform that facilitates intercity connections and intra-city links to the global system of production, the creation of such platforms requires infrastructure. Conservative estimates suggest that something on the order of $20 trillion of investment in infrastructure—roads, telecommunications, water, sanitation, residential and business construction—will have to take place to build these cities of the future. The future trajectory of global GDP will depend significantly on the extent to which the infrastructures investment required to build urban platforms in the developing world occurs or not.

Financing Infrastructure

Bertrand Badre
,
Blue Orange Capital and Peterson Institute for International Economics

Abstract

The main roadblock to greater infrastructure investment in the developing world is the scarcity of fundable projects rather than a scarcity of sources of international finance. The feasible set of fundable projects depends critically on whether it is possible to overcome market failures generated by information asymmetries between providers of capital such as private equity firms, sovereign wealth funds, and other asset managers, and recipients of capital (i.e., sovereign governments). Mechanisms to internalize sovereign risks embodied in infrastructure projects suggest a critical role for multilateral financial institutions as knowledge catalysts and originators of project finance. Public-private partnerships fostered by multilateral engagement can incentivize local stakeholder participation and, importantly, alleviate pre- and post-completion operational and expropriation risks.
Discussant(s)
Abdul Abiad
,
Asian Development Bank
Lawrence H. Summers
,
Harvard University
Mohamed El-Erian
,
Allianz Group
JEL Classifications
  • F3 - International Finance
  • F4 - Macroeconomic Aspects of International Trade and Finance