CAF Research Program on Development Issues

Transcription

1 CAF Research Program on Development Issues Call for Proposals Terms of Reference Objective The Corporación Andina de Fomento (CAF) invites applications for its Program for the Support of Research on Development Issues. The Program invites proposals for research papers on topics of interest to CAF. CAF will provide economic support to the proposals selected for their completion and also will share their results with academics and policy makers. The proposals will be used as background papers for the Reporte de Economía y Desarrollo 2008, CAF s flagship publication. 1 Research Topic: Infrastructure and development in Latin America Introduction Infrastructure coverage and quality has improved in Latin America over recent decades, but progress has lagged behind other middle income countries, which has resulted in a widening gap, especially with respect to China and East Asia. Notwithstanding access to infrastructure and quality have expanded in the region over the last twenty years, progress has been slow and coverage across sectors has been uneven. Latin America lags behind other regions in telecommunications, especially in terms of increases in telephone lines per worker and number of internet users. Similar results apply for electricity generation capacity per worker. With respect to transportation, land coverage barely increased in 2001 and remains below levels in medium income developing countries. Only in cellular telephones and in access to safe water and improved sanitation has Latin America showed significant improvement and levels comparable or better that other middle income countries. (Fay and Morrison, 2006) 1 This call for papers covers some of the topics that will be covered in the Reporte de Economía y Desarrollo 2008, but is not exhaustive. 1

2 Infrastructure coverage in LAC, China, and middle income countries Access to electricity (%) Roads (km/km2) Mainlines per 1000 people Cellular telephones per 1000 people Water (%) Sanitation (%) LAC 81 0, China 99 0, Middle Income 89 0, Countries Year Source: World Development Indicators It is important to underline that regional averages hide large differences in performance across countries. This is a reflection both of differences in income across countries but also of differences in geographical characteristics. Percent of population with access to improved sanitation and water source (2002) Countries Improved sanitation facilities Improved water source Improved water source, rural Improved water source, urban Bolivia 45% 85% 68% 95% Brazil 75% 89% 58% 96% Chile 92% 95% 59% 100% Colombia 86% 92% 71% 99% Ecuador 72% 86% 77% 92% Paraguay 78% 83% 62% 100% Peru 62% 81% 66% 87% Uruguay 94% 98% 93% 98% Venezuela 68% 83% 70% 85% Latin America & Caribbean 75% 89% 69% 96% Source: World Development Indicators There also exist marked differences between urban and rural coverage, with rural access to electricity, road and telecommunications much lower than in urban settings. Given that poverty is usually greater in rural areas, lower rural access explains much of the disparity in coverage between the rich and the poor in Latin America. Nonetheless, rapid urban growth has put pressure on infrastructure, and poorer neighborhoods generally have inadequate access to quality infrastructure. The relationship between infrastructure and development has been the object of increasing study in recent years. There exists ample consensus on the fact that adequate 2

3 infrastructure generates a positive impact in a country s development, contributing to productivity, economic growth and international competitiveness. 2 Rates of return to infrastructure investment tend to be highest during the early stages of development, depending both on the existing level of assets as well as their quality, and tend to fall as economies reach maturity. Canning and Pedroni (1999) find that there exists a maximum level of infrastructure that maximizes growth in the economy. If a country is above this level, it is deviating resources from other more productive uses. If a country is below this level, increases in the provision of infrastructure increase per capita income in the long run. Furthermore, Canning (1999) estimates a production function that includes infrastructure and finds that electricity and transportation networks have more or less the same marginal productivity as capital on average, although telephone networks appear to have a higher marginal productivity. Calderón and Servén (2003) find that infrastructure contributes positively and significantly to output levels and growth in Latin America. In particular, the marginal productivity of telecommunications, transportation and power significantly exceeds that of non-infrastructure capital. Hulten (1996) finds that medium and low income countries that use their infrastructure inefficiently pay a penalty in terms of lower growth, due to the fact that when the stock of infrastructure is low enough, an increase may be insufficient to stimulate economic growth. Infrastructure provides a platform for productive transformation. Infrastructure is a key determinant of productivity. 3 On the one hand, infrastructure is not only a consumption good for households but also an intermediate good for firms, affecting production costs and international competitiveness. Latin America s infrastructure gap entails a significant cost in terms of output and productivity. Higher transport and logistic costs (typical inventory levels in Latin America are double those of industrial countries) raise production costs. The availability and quality of infrastructure also affect the quality of investment: in fact investment climate surveys suggest that Latin American entrepreneurs consider 2 See Calderón and Servén (2004) and Briceño-Garmendia, Estache and Shafik (2004) provide overviews of the evidence on the relationship between infrastructure and growth. 3 Studies have consistently found a positive relationship between infrastructure and productivity, although there is some disagreement over the magnitude of the impact. Aschauer (1989), Munnel and Cook (1990), Garcia-Mila and McGuire (1992), and Eberts (1986, 1990) find a clear and positive relationship between drops in productivity growth and infrastructure expenditure reductions. Nonetheless, Holtz-Eakin (1994) and Hultn and Schwab find that the effect is quite small. 3

4 infrastructure an important issue. For example, according to the Global Competitiveness Report, infrastructure in the region lags behind much of the rest of the world, with most of the region s countries ranking in the bottom two thirds of the worldwide cross country assessment. Furthermore, Escribano et al. (2005) find that infrastructure is a major determinant of Total Factor Productivity, counting for approximately 55% across a sample formed by Brazil, Ecuador, El Salvador, Guatemala Honduras and Nicaragua. Electricity and transport services were the infrastructure variables with the highest impact of average productivity. How investment in infrastructure translates into productive assets varies considerably across countries, depending on such factors as procurement efficiency, corruption, and project selection capacity. How has investment in infrastructure affected productivity in specific cases in the region? Does investment in infrastructure tend to be more demand driven or supply driven? Are the positive impacts of infrastructure due to investment in high productivity areas, or simply to the lack of infrastructure in these areas? Does infrastructure drive output growth and productivity, or are higher infrastructure levels simply the result of higher income? What regional evidence is there in this area? Infrastructure important to achieve greater integration into the world economy: Infrastructure is key in increasing trade and integration, given that it affects market access in two ways: firstly by allowing factors to arrive to production centers, and secondly by connecting production centers with local and international consumer markets. In Latin America, the provision of infrastructure is complicated by the presence of significant geographical obstacles: large distances with low population density, concentration of the region s population in the periphery (i.e. the coasts), significant natural barriers, and a strong vulnerability to natural disasters. Inadequate infrastructure implies not only an increase in transaction costs, but also reduced productivity and economic activity, ultimately reducing the region s competitiveness. Quantitatively, the costs associated to insufficient infrastructure are often higher than those of trade barriers in the region s trading partners. For the region to be able to take advantage of globalization trends, in particular in the case of multinational firms, studies have shown it is important to reduce total 4

5 transportation costs, improve port efficiency and expedite customs proceedings, improve telecommunications and eliminate restrictions to the movements of goods and factors, all of which would allow an effective increase in market size and the reduction of access costs. Limao and Venables (1999) study the determinants of transport costs in trade and prove how these depend both on a country s geography and on its infrastructure. The authors estimate that after the process of trade liberalization of the 90 s, the effective rate of protection dependent on transportation costs is much higher than that caused by tariffs and that furthermore, within these costs, infrastructure is a significant determinant. Fink et al. (2002) find that variations in telecommunication costs also have a significant effect on bilateral trade flows. Finally, Clark et al. (2004), in examining the determinants of freight costs, find that having a port of low quality is equivalent to the country being on average 60% farther from the market. The quality and efficiency of existing infrastructure are also important for increasing a country s participation in the global economy. Wilson, Mann and Otsuki (2004) estimate the relationship between trade facilitation (in particular four categories: port efficiency, customs, regulation and service sector infrastructure) and world trade flows in manufactures. Not only do results show that trade facilitation measures increase trade, but that most developing regions gain more in exports than in imports, due to increased exports to OECD countries. In the case of Latin America, the authors find that customs cause more problems compared to the other categories considered, showing that infrastructure alone can be insufficient to achieve greater integration in the world economy. Improving infrastructure is an important component of a trade facilitation agenda. Examples of this include improvements in ports, roads and telecommunications. Without investments in trade facilitation infrastructure, many developing countries would not be able to take advantage of trade reform and liberalization. How have trade facilitation programs done in Latin America? How have results compared to similar programs in other developing countries? In a regional context, all countries stand to benefit from both national and trans-national infrastructure projects, but the net benefits for any one country may not be proportionate to the costs faced. Often infrastructure projects do not address the positive and negative externalities that could be captured and dealt with under regional coordination. Given the significant externalities present, and the need to even out cost and benefit 5

6 asymmetries between countries, it is important that countries coordinate infrastructure development. The Puebla Panama Plan and the Initiative for the Integration of Regional Infrastructure in South America (IIRSA) are two important examples of regional coordination in infrastructure in Latin America. What has been the experience of country cooperation in infrastructure development in the region? What lessons can be learned from the experiences of other regions, such as the European Union? Often, local interest do not coincide with national interests, which can hinder multinational infrastructure agreements. What mechanisms can be used to prevent these type of problems? Besides trade effects, infrastructure also affects the attraction of FDI and, as a result, the inclusion in global production chains. Kumar (2001) finds that public investment in efficient infrastructure improves the business climate and promotes FDI, given that multinational firms are particularly sensitive to the availability of infrastructure in deciding where to locate resources. How can infrastructure be used to increase the flows and maximize the benefits of FDI in Latin America? How has infrastructure affected the presence of multilaterals across the region? Infrastructure is key in reducing income inequality, and plays important role in reducing social exclusion. Access to infrastructure improves economic opportunities for the poor. For example, better roads allow isolated communities better access to labor markets and facilitate trade and social exchange. Information and communication technology, by providing information on market conditions, job and education opportunities and available services, contributes to promoting pro-poor growth. Access to quality infrastructure not only affects quality of life directly, but also indirectly, through its effects on health and education, among others. Access to clean water, for example, is key in reducing water-borne diseases. At the same time, access to water may increase access to education, in particular in the case of girls who would otherwise be spending large amounts of their time fetching water. Furthermore, improved infrastructure has been shown to reduce inequality (Calderón and Servén 2004). This is of particular importance in Latin America, given that it is the most unequal region in the world and the difficulty implicit in reducing inequality. 6

7 There is a difference between not having access to infrastructure because it is not available, or because it is too expensive. How have government programs extended infrastructure so as to increase social inclusion? Which programs have performed best? The infrastructure sectors where Latin America has performed best are access to water and sanitation. Why is this the case? What are the characteristics of programs to increase access to water that could be extended to other sectors? Several countries in Latin America have advanced social housing programs to increase housing quality among the poor, especially in large urban areas. What evidence has emerged on the performance of these programs? Expected contribution We welcome proposals relevant to the topics discussed above. In particular, we request that researchers present proposals that address ONE of the questions (i.e. highlighted in italics) of he previous section, or a closely related topic. Preference will be given to empirical contributions related to the region, in particular cross-country studies based on micro level data. Eligibility: The program is intended primarily, but not exclusively, for researchers associated with Latin American universities, research institutes and other private or public institutions in Latin America. The invitation is also extended to assistant professors, researchers or postgraduates from CAF 4 member countries working in US or European institutions with focus on topics related to Latin America. Program conditions: CAF will pay US$ to selected proposals. Additionally, it will pay travel (economy class) ad lodging expenses for a seminar to be held in Caracas where final papers will be presented. CAF reserves the right to publish and distribute resulting works. Authors however are free to submit the finished work to specialized journals or publications or to use it to fulfill academic requirements, provided that CAF sponsorship is acknowledged. 4 CAF member countries are: Bolivia, Colombia, Ecuador, Peru, Venezuela, Argentina, Brazil, Chile, Costa Rica, Dominican Republic, Jamaica, Mexico, Panama, Paraguay, Spain, Uruguay and Trinidad & Tobago. Applications from nonmember countries will also be considered as long as they focus on the problems faced by the region. 7

8 Final papers must be written in English and submitted by November 16, Selected papers may be chosen to be presented in a LACEA round table to be sponsored by CAF in the next LACEA Annual Meeting. CAF will cover travel (economy class) and lodging expenses for this participation. How to apply: Proposals should have between 8 and 10 pages and must include the following Title Abstract Objectives and relevance for the region Research methodology Outline of research and timetable Bibliography Additionally, proposals must be accompanied by a Curriculum Vitae and a letter of support from the researchers institution or, in the case of graduate students, from their academic advisor. All material should be sent via to: CAF Research Program on Development Issues desarrollo@caf.com Applications must be submitted by April 30, Early applications are encouraged. A jury appointed by CAF will evaluate proposals and decisions will be made on the basis of the quality of the proposal and of its relevance to Latin America and the Andean region. Results will be announced May 18 th. For further information about this call for proposals, please contact Stefania Scandizzo Stefania.Scandizzo@caf.com Tel or Irene Sierraalta Irene.Sierraalta@caf.com Tel Further information about CAF and the program can be found at 8

9 References Aschauer, David (1989). "Is Public Expenditure Productive?" Journal of Monetary Economics vol. 23, North Holland: Briceño-Garmendia, C., A. Estache, and N. Shafik. (2004). Infrastructure Services in Developing Countries: Access, Quality, Costs and Policy Reform, World Bank Policy Research Working Paper Canning, D. (1999). The Contribution of Infrastructure to Aggregate Output. Policy Research Working Paper 2246.World Bank,Washington, D.C David Canning and Peter Pedroni (1999). "Infrastructure and Long Run Economic Growth." CAER II Discussion Paper No. 57. Calderón, C., and L. Servén. (2004). The Effects of Infrastructure Development on Growth and Income Distribution. Policy Research Working Paper World Bank, Washington, D.C. Calderón, C., and L. Servén. (2003). The Output Cost of Latin America s Infrastructure Gap. In W. Easterly and L. Servén, eds., The Limits of Stabilization: Infrastructure, Public Deficits and Growth in Latin America. Stanford University Press and World Bank. Clark, Ximena, David Dollar and Alejandro Micco (2004): Port Efficiency, Maritime Transport Costs and Bilateral Trade, NBER Working Paper No Eberts, Randall (1990). Cross-sectional Analysis of Public Infrastructure and Regional Productivity Grtowth, Working Paper 9004, Federal Reserve Bank of Cleveland. Eberts, Randall (1986). Estimating the Contribution of Urban Public Infrastructure to Regional Growth, Working Paper 8610, Federal Reserve Bank of Cleveland. Escribano, A., N. Peltier-Thiberge, L. Garrido, and H. Singh. (2005). The Impact of Infrastructure on Competitiveness in Latin America: A Firm Level Analysis Based on Investment Climate Assessments. World Bank. Fay, Marianne and Mary Morrison (2006). Infrastructure in Latin America and the Caribbean: Recent Development and Key Challenges, The World Bank. 9

10 Fink, Carlsten, Aaditya Matoo and Ileana Cristina Neagu (2002). Assessing the Impact of Communication Costs on International Trade, World Bank Policy Research Working Paper 2929, World Bank. Garcia-Mila, Teresa and T. McGuire (1992). The Contribution of Publicly Provided Inputs to States Economies, Regional Science and Urban Economics, vol.22, pg Holtz-Eakin, Douglas (1994). Public-Sector Capital and the Productivity Puzzle, The Review of Economics and Statistics, 76 (1):12-21 Hulten, C. (1996). Infrastructure Capital and Economic Growth: How Well You Use It May Be More Important than How Much You Have. NBER Working Paper National Bureau of Economic Research. Hulten, C.R. and R.M. Schwab (1991) "Public Capital Formation and the Growth of Regional Manufacturing Industries," National Tax Journal, 44, No 4. Kumar, Nagesh (2001). Infrastructure Availability, Foreign Direct Investment Inflows and their Export Orientation: A Cross-Country Exploration, Research and Information System for Developing Countries, New Delhi, India. Limao, N. and A.J. Venables (1999). Infrastructure, Geographical Disadvantage and Transport Costs, International Economics Working Paper No. 2257, World Bank. Munnell, Alice and Leah Cook. (1990). "How does public infrastructure affect regional economic performance" New England Economic Review, Federal Reserve Bank of Boston (Sept/Oct.): Wilson, J.S.; Mann, C.L. and Otsuki, T. (2004). Assessing the Potential Benefit of Trade Facilitation: A Global Perspective. World Bank Policy Research Working Paper 3224, World Bank. World Economic Forum, Global Competitiveness Report. 10