1. Infrastructure Reforms in ECA and Economic Performance
Antonio Estache
October, 2005

2. Overview Background What’s the efficiency effect of reforms in ECA?
Some basic figures on the sector in ECA
How important is the sector for economic productivity?
How widespread were reforms in the region?
What’s the efficiency effect of reforms in ECA?
Some new econometric results
…don’t ignore the short to medium term trade-offs
Concluding comments

3. Some numbers on infrastructure in ECA
1. How much is needed to run INF? (% of GDP)
2005
2010
Investment 3%
2.6%
O&M 4%
3.8%
Total 7%
6.4%
Bulk
Electricity (50%), Telecoms (20-25%), Roads (25-20%)
2. Employment and value added in ECA’s utilities?
In 2000: Employment: % of total Value Added: 3-5% of total

4. How important is the sector for growth convergence and productivity?
Strong evidence around the world of role of infrastructure
Output elasticity to infrastructure investment is much higher for LDCs than developed countries
Canning (1999) shows that roads+rail and electiricity generation Have roughly the same marginal productivity as total physical capital, but telecoms and transport routes in higher income countries have a higher mpK
Rates of return on Bank projects are in 15-30% range (except in water, where they are lower…)
Very few quantitative assessments in ECA
Education and health tend to be the focus…
A few studies highlight the role of transport as an integrator and catalyzer of growth in peripheral regions… (Brown (2001), Cappelen et al. 2003, Boldrin and Canava (2003)

5. How much reform in ECA? It depends on the sector…
It depends on the reform…
It depends on what we measure
in some sectors (water and transport) we can’t say much simply because things are not being measured…

6. Countries with an independent regulator (% of sample in 2004)
Electricity
Water
ICT
AFR
34%
12%
77%
EAP
36%
25%
27%
ECA
78%
20%
57%
LAC
73%
50%
85%
MNA 7% 0%
SAR
100%
Developed countries
92%
56%

7. Countries with Private Participation (% of sample in 2004)
Elec. Gen.
Elec. Dist.
Water
ICT
AFR
39%
28%
20%
51%
EAP
67%
64%
61%
ECA
41%
48%
62%
70%
LAC
68%
74%
MNA 7% 6%
18%
33%
SAR
38%
13%
50%
Developed countries
43%
80%
84%

8. How much do reforms matter to the sector performance?
NOTE: Don’t trust simple statistical correlations… look at some econometric results
Efficiency (measured by TFP or other economic concepts):
Very little work on ECA (1 paper on Ukraine water…)
Strong evidence of efficiency gains in energy and transport, less obvious in water (range vary across regions and sectors)
Other measures available
Access
Affordability
Average prices
Price structures
Quality

9. Summing up research 2 main reforms: PPI and IRA
Somewhat unexpectedly, both seem to have tended to reduce access & increase prices
Neither had a significant effect on quality
Reforms are effective in offsetting impact of corruption
Technological progress mattered more than these 2 reforms
Probably other reforms (commercialization, restructuring, regulatory design, …) mattered more

10. Concluding comments When should think about this? Overall
When you conduct the Cost/Benefit Analysis of reform options
Trade-offs matter!!!!
…but also when
When you assess regional policies and try to get a sense of the relative importance of sectors and their reform needs
Overall
Efficiency payoffs of more and better infrastructure are relatively obvious…but Strong impression that there is a lot we still need to look into