This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. A common dilemma facing governments around the world is how to meet the sizeable fiscal costs of providing and maintaining infrastructure networks. Over the past decade, developed and developing countries have looked to fiscal rules, budgetary reforms, tax policy and administration measures, public-private partnerships and other innovative financial instruments to raise additional finance for infrastructure investment. This paper looks at the range of options for raising the financing to meet Tanzania’s infrastructure needs. It begins with a brief survey of the evidence on the relationship between infrastructure, public investment, and economic growth, and then goes on to consider the case for additional infrastructure investment in Tanzania. The second part of the paper looks at five broad options for mobilizing additional resources to meet Tanzania’s infrastructure needs: (i) direct private investment and PPPs, (ii) expenditure reprioritization and efficiency, (iii) domestic revenue mobilization, (iv) external grants and concessional financing, and (v) sovereign borrowing on domestic or international credit markets. The paper concludes with some general recommendations on what combination of the above approaches might be suitable for Tanzania.

This paper presents evidence on growth spillovers across African economies and examines the specific role of infrastructure in their transmission. The results suggest that improved infrastructure in a given country raises the profitability of both domestic and foreign investment, thus raising investment ratios and boosting growth in per capita income. Expansion in one country raises the profitability of investment in neighbouring countries, as it creates a wider market and improves opportunities for export. This, in turn, feeds back and further enhances growth in the initially expanding economy. Owing to such externalities, investment in infrastructure carried out at the national level is likely to be sub-optimal. These results suggest that external aid, aimed at financing infrastructure in Africa, might be better provided at a regional than at a national level. This would help better internalise the benefits accruing to individual countries and would lead to a better allocation of investment outlays.

Abstract: Public inputs play an important role in investment decisions made by multinational firms. Empirical research suggests that investment in public inputs such as infrastructure can have direct effects on productivity by lowering the average cost curve for private firms, as well as indirect effects by creating positive externalities associated with agglomeration. A general equilibrium model of a small open economy is developed that incorporates the direct and indirect effects associated with public inputs and shows that a threshold level of public inputs is necessary to induce multinational investment. Multiple equilibria exist, but it is shown that a small host economy can induce foreign direct investment and achieve a stable equilibrium by providing a threshold level of the public input. It is further shown, that by incorporating public inputs into multinational’s investment decisions, governments that seek to attract foreign direct investment potentially have more to gain by subsidizing the development of public inputs than by subsidizing firms directly. Foreign direct investment by multinational corporations has played a significant role in the success of developing nations that have grown out of poverty and into

The Economics & Statistics Discussion Papers are preliminary materials circulated to stimulate discussion and critical comment. The views expressed in the papers are solely the responsibility of the authors. Does Spatial Proximity Matter?

is one of ten regional units mandated by Congress and established in Fall 1988 to support research, education, and training in surface transportation. The UC Center serves federal Region IX and is supported by matching grants from the U.S. Department of Transportation, the

The size and significance of public infrastructure investment impacts on costs and productivity of private enterprise, and thus on economic health and growth, has proven nebulous to empirically substantiate. Various studies using alternative theoretical and econometric methodologies, and for different time periods, sectors, and countries, have tentatively established that such a productive impact exists and is statistically significant. It also seems smaller and more variable over time, space, and sector than was implied by initial studies on the “public capital hypothesis”. One piece of the puzzle that has received little attention, however, is the role of spatial spillovers in driving infrastructure investment benefits. Such spillovers are not only conceptually important, but could also shed light on discrepancies between studies for different data, and particularly aggregation levels. In this study we apply a cost-based model to state-level U.S. manufacturing data, for capital, production and non-production labor, and materials inputs, and for the 1982-96 time period, in an attempt to untangle the private cost-saving contributions of inter- and intra-state public infrastructure investment. We carry out two kinds of spatial adaptations – a spatial autocorrelation adjustment and a spatial spillover theoretical modification – to the estimating system consisting of a Generalized Leontief cost function and input demand equations, to address this issue. We find that intra-state public infrastructure benefits appear larger in magnitude when inter-state spillovers are directly recognized, as well as being invariably statistically significant. Inter-state spillovers are also directly beneficial to manufacturing firms, although their contribution appears smaller in size when temporal serial correlation is recognized in addition to spatial correlation.

Abstract- This paper examines the link between highway congestion, labor productivity, and output in a sample of California counties for the years 1977 through 1988. A county production function is modified to include both the value of each county’s street and highway capital stock and a measure of the congestion on each county’s highway network. This allows a comparison of two distinct policies—expanding the street and highway stock versus reducing congestion on the existing stock. The evidence suggests that congestion reduction is productive. The effects of expanding the street and highway stock are more suspect. Overall, the results provide evidence that using existing street and highway infrastructure more efficiently can produce economic benefits.

firm productivity and household welfare through its impact on the location of economic activity. • State infrastructure policies currently favor decentralization—the opening of new territory to development and the movement of firms and households from dense urban environments to the surrounding suburbs. • Recent research, however, suggests that the clustering of producers and consumers in a given geographic area is economically and socially beneficial. • In light of this research, institutional reforms that would change the management and direction of public infrastructure investment

This paper describes the different institutional frameworks for infrastructure policy in Germany and France. The economic effects of infrastructure are estimated econometrically for German and French regions. We find evidence that regional road infrastructure has a significant impact on regional output. Moreover, we find evidence that for Germany the priority of promoting equal living conditions throughout the regions is an important determinant of regional infrastructure policy.

Economists have long been interested in the productivity effects of infrastructure investment, and this research has been an important input into budget allocations for investment in transport infrastructure. This chapter analyses the macroeconomic productivity effects of road investment in 13 Western European countries. This chapter shows that the rate of return for many countries on past investment, while positive, has been quite low at around five per cent. Assuming that infrastructure investment is subject to falling returns, the return on future investment in Europe is likely to be even lower. This does not necessarily apply to Ireland which has a relatively undeveloped stock of road infrastructure, suggesting that future road investments are likely to have higher returns than elsewhere in Europe. � The author is grateful for the valuable comments received from two anonymous referees. 282 AGGREGATE PRODUCTIVITY EFFECTS OF ROAD INVESTMENT Transport infrastructure investment, and road infrastructure investment in particular, are seen by a major part of the general public and by many political decision makers as a