Metropolitan Infrastructure and Capital Finance

This paper provides a baseline analysis and comparison of private participation in key infrastructure (energy, transportation, telecommunications, water and sanitation) for developing countries relative to the GDP. Perceptions of the role of infrastructure in economic development and of the desired modes for providing infrastructure have evolved in the last two centuries at both the national and metropolitan levels. In the nineteenth and early twentieth century, most metropolitan infrastructure was privately provided. By the mid-twentieth century, infrastructure was viewed as the commanding heights of the economy, important for economic development but also subject to endemic market failures. Accordingly, public-sector involvement in infrastructure, advocated by both governments and development agencies, became the norm. Then in the 1980s and 1990s, concerns about government failure, poor performance of public infrastructure agencies, and large investment requirements heightened interest in the private provision and financing of infrastructure. Private participation in infrastructure (PPI) has since greatly expanded, doing well while falling short of the most optimistic expectations, with a more sector-focused and country-tailored approach evolving in recent years (Ingram and Fay 2008).

Infrastructure is not precisely defined, and it originally encompassed most social overhead capital. This paper defines infrastructure to include energy (electricity and natural gas); telecommunications (fixed telephone lines, mobile phone service, and Internet connections); transportation (airports, railways, roads, and seaports); and water supply and sanitation (piped water and sewage collection and treatment). Many of these activities share technical features that require governmental regulation to improve outcomes, such as integrated networks and economies of scale that encourage natural monopolies, and economic features, such as externalities and attributes of public goods. This definition omits hospitals, schools, and government facilities, which do not utilize integrated networks or exhibit the same economy of scale. It also excludes soft infrastructure such as governance, financial, social, and cultural assets and institutions that rely more on knowledge than on physical capital.

The data for physical stocks across all sectors are for 2006, and complete data covers 83 countries. The analysis of infrastructure physical capital stocks reported in this paper are based on country-level data available from the World Development Indicators database (World Bank 2011), including kilowatts of electricity-generating capacity, kilometers of paved roads, number of fixed telephone lines, number of mobile phone subscriptions, and share of households with access to safe water and adequate sanitation. Additional service quality data for roads and telecommunications are from the World Road Statistics (International Road Federation 2010) and the World Telecommunications Development Report (International Telecommunications Union 2010).

This paper was presented at a 2011 conference at The Brookings Institution organized by the Lincoln Institute of Land Policy and is Chapter 13 of the book Financing Metropolitan Governments in Developing Countries.