Beyond brick and mortar: Key lessons learned on the impact of infrastructure on economic development
Acting Chief Economist for Infrastructure
Consultant in the Office of the Chief Economist for the Infrastructure Vice Presidency, World Bank
Let’s talk about the transformative role of infrastructure investments in driving economic development.
Public infrastructure can be used by policymakers as a formidable means to promote growth and reduce inequality. Our previous literature review found that public investment in infrastructure can have a “multiplier” effect—meaning measurable economic impact for each dollar of government spending—particularly high in the case of periods of crises.
Academic research over the last four decades has provided strong evidence of the positive contribution of infrastructure investments towards development objectives, including output and productivity, poverty and inequality, labor market outcomes, human capital formation, and trade.
Our recent research from the World Bank Infrastructure Chief Economist’s Office offers insights for practitioners seeking to maximize the development impact of infrastructure. The Impact of Infrastructure on Development Outcomes: A Qualitative Review of Four Decades of Literature synthesizes over 300 studies conducted between 1983 and 2022, providing a comprehensive overview of the main findings in digital, energy, and transport infrastructure. This is one the most significant attempts to date to understand the impact of infrastructure on development outcomes.
Our four overarching takeaways are:
Recent studies on digital infrastructure show that the arrival of broadband internet enhances firm productivity and employment—particularly for highly skilled labor. For instance, Hjort and Poulsen (2019) found that the probability that an individual is employed increases between 3.1% and 13.2% when fast internet becomes available in Sub-Saharan African countries. Increased broadband access also boosts household welfare and reduces poverty as in the case of Senegal, where 3G coverage is associated with a 10% decline in extreme poverty rate ($1.9 per day).
In many developing countries, people use mobile broadband to access the internet. A 10% increase in mobile broadband adoption boosts economic growth by creating a 0.6% to 2.8% increase in GDP according to a cross-country study. In addition, the availability of mobile phones improves coordination between producers and traders reducing the price dispersion of agricultural products—especially the perishable ones that cannot be stored—and increases market efficiency as in the case of Niger and India.
Electricity access enables structural transformation and human development, with notable benefits for women
Electrification is a key enabler of the structural transformation process by pushing more workers out of primary sectors in low- and middle-income countries. At the household level, electrification increases labor force participation, especially among women, and supports the establishment of non-farm and female-owned businesses (as in the case of Ghana). For example, electrification in El Salvador led to a 46 percentage-point increase in women’s participation in non-farm employment. Extending the lighting hours with electrification also acts as a powerful channel to enhance human capital development, as in the case of El Salvador where studying at home increased by 78% after the grid connection.
The literature is particularly rich when it comes to transport-to-development linkages, especially for rural roads in Sub-Saharan Africa. In the context of Tanzania, on average, road quality improvements decreased the probability of migrating away from a rural location by 7.2% in the surveyed communities, likely due to the associated positive and significant impact on per capita consumption.
Improvements in roads also facilitate the specialization of localities as in the case of Mexico. A 10% increase in market access results in a 2.9% to 6.5% increase in employment for the period 1986–2014, with the largest impact in the commerce and services sector, and a 13% increase in output specialization.
In addition, improved transport infrastructure translates into an increase in firms’ exports and thereby on employment within a country. Peru is such an example with a distance elasticity of exports of around 1.2. New roads built in Peru between 2003 and 2010 contributed to about 4% of the net new jobs created by firms expanding exports.
But there may be unintended consequences, such as conflict and deforestation
The overwhelming balance of evidence suggests that infrastructure improvements are critical in supporting the development process. However, infrastructure might also play a role in contributing to social tensions through protests and violence. Areas with full 2G mobile phone coverage in Sub-Saharan Africa triggered collective action by enabling people to acquire and spread information to organize a civic response in Sub-Saharan Africa between 1998 and 2012. A fall in GDP growth of 4 percentage points leads to a differential increase in per capita protests between 8% and 23%. In a similar vein, the availability of cell phone coverage significantly increases the probability of violent conflicts by improving cooperation and coordination within rebel groups.
Several papers explore the unexpected socioeconomic costs of other infrastructure such as the impact of the expansion of trunk roads on deforestation. They highlight the importance of measures to be taken to overcome potential negative social and environmental externalities.
Is there a “true” impact of infrastructure on development?
In conclusion, despite some mixed results, academic research over the last four decades has demonstrated with some caveats the largely positive contribution of infrastructure investment on development. However, the findings vary in terms of magnitude and significance not only across countries, but also within the same country.
💡 In Part 2 of this blog, we’ll dive into the results of a meta-analysis conducted in a companion paper, revealing the “true” impact of various infrastructure types. Stay tuned to learn about the impact of infrastructure investments and how they can drive sustainable development for years to come.