Productiveness and Welfare Implications of Public Infrastructure: A Dynamic Two-Sector General Equilibrium Analysis

Abstract

This paper studies the effects of public infrastructure investment policies. A dynamic general equilibrium model where the effective stock of public infrastructure is an input in production is used to analyze the consequences of changing the share of GDP devoted to public investment. Infrastructure has sizable long-run effects on an economy's GDP. The model is solved numerically using parameters from seven Latin American countries. While these countries may be under-investing in infrastructure, it is also shown that too much public investment can be detrimental.

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JEL Classification: E62, O4, C61, C68