The Role and Impact of Infrastructure in Middle-Income Countries: Anything Special?

Abstract

We examine the evolution of infrastructure, and the impact of infrastructure investment, in middle-income countries (MICs). We document how different types of infrastructure stocks, as well as infrastructure investment, vary with the level of development and growth performance. We then use the two-stage approach of Corsetti, Meier, and Müller (2012) to identify exogenous public investment shocks and investigate the macroeconomic impact of these shocks. We find that the provision of infrastructure varies across development stages; there is a focus on basic infrastructure, such as transport, water, and sanitation, during early stages, and an emphasis on “advanced” infrastructure, such as power and especially information and communication technology, in later stages. Better-performing MICs tend to invest more in infrastructure. They also have more information and communication technology infrastructure. Finally, we find a more significant and sustained impact of exogenous public investment shocks on output in MICs than in low-income countries.

Keywords: economic development, infrastructure, middle income

JEL Classification: H54, O18, O40, Q40