Contribution of Infrastructure to Growth and Poverty Reduction Bali, June 28 th 2004

1. Contribution of Infrastructure to Growth and Poverty Reduction Bali, June 28th 2004 Stephen Jones Contribution of Infrastructure to Growth and Poverty

2. Outline of Presentation • Poverty and Infrastructure in East Asia and the Pacific • Conceptual Framework • Evidence on Infrastructure-Poverty Linkages • Issues Contribution of Infrastructure to Growth and Poverty

3. Three Broad Poverty Definitions • Poverty (1): income/expenditure, including international • US$1 per day. Simplest measure is incidence (% below poverty line) • Allows international comparisons where data exists. International • Poverty Line may not be main focus of national policy concern. • Poverty (2): MDG related, encompassing health, education • access to water and sanitation, some elements of gender equality • Allows international comparison and tied to international agreements. • Direct links to infrastructure in some cases • Poverty (3): based on wider concepts of enhancing human • capabilities, freedoms and social inclusion • Captures socially and politically important elements neglected in • (1) and (2) but difficult to measure and lack of consensus on elements Contribution of Infrastructure to Growth and Poverty

4. 1990 2000 1990 2000 Poverty Incidence (%) Number of Poor (m) PRC 30.8 16.1 371.5 215.9 Cambodia 48.3 35.5 4.4 4.3 Indonesia 20.6 16.3 36.7 33.6 Lao, PDR 53.0 34.6 2.2 1.8 Malaysia 0.5 0.0 0.1 0.0 Philippines 19.1 13.2 11.7 10.1 Thailand 12.5 5.2 7.0 3.2 Vietnam 50.8 23.6 33.6 18.5 PNG 23.7 18.5 1.4 1.3 Poverty in East Asia – International Measure Contribution of Infrastructure to Growth and Poverty

5. Main Features of Poverty in EAP Region • Extent and speed of poverty reduction unmatched in world history • Apparent trend is economic growth with increasing inequality – may • imply improvements on Poverty (1) but concerns on Poverty (3). • Data patchy and incomplete in important ways even for Poverty (1) • (e.g. data on urban China, Myanmar,Pacific Islands). • Poverty (1) remains concentrated in rural areas, but number of • poor people in urban areas may be increasing, number in • rural areas falling (SE Asia: 17% poor urban 1990, 22% 2000). • PRC dominates in absolute numbers (c. 70% total in region 2000). • Poverty increasingly a problem of (a) lagging rural areas (inland, • highland, remote island) and (b) urban/peri-urban slums. Contribution of Infrastructure to Growth and Poverty

6. Access to Improved Water and Sanitation Contribution of Infrastructure to Growth and Poverty

7. Transport and Communications Indicators Contribution of Infrastructure to Growth and Poverty

8. Infrastructure Availability and Access • Comparative data on infrastructure stock and service • provision is limited except in certain sectors. • Access to improved water supply especially limited Cambodia, • Lao, PNG (rural). Sanitation access poorest Cambodia, Lao, • Mongolia, PRC (rural), Solomon Islands. • Road density and quality measures weakest in Mongolia, • Myanmar, PNG, Solomon Islands,Cambodia. • Telephone access especially weak in Cambodia, Lao, Myanmar, • PNG. • Group of poorest countries have markedly worse infrastructure, • but national level data hides large sub-national inequalities Contribution of Infrastructure to Growth and Poverty

9. Defining Infrastructure • Capital good: produces services (ultimately performance of • service market impacts on users, not provision of capital alone) • Lumpy not incremental (difficult to match supply and demand) • Long-lasting (implications for finance and maintenance) • Space-specific and use-specific in services provided (sunk costs) • Source of services for final consumption and as input to • enterprises • Infrastructure is characteristic of goods, not services and • depends on technology – e.g. mobile telephony Contribution of Infrastructure to Growth and Poverty

10. Implications of Definition • Markets for infrastructure goods prone to market failures – • political and demand risk • Markets for infrastructure services also prone to (related but • different) failures – natural monopolies, externalities, • public goods • These characteristics imply likelihood of significant public • role in supply and regulation of markets for services, though • not necessarily state provision of the capital or service • Viability of options depends on how private investors recover cost • and how protection from non-market risks can be provided. Cost • recovery mechanism important in determining distribution of • benefits from investment as well as viability Contribution of Infrastructure to Growth and Poverty

11. Characteristics of Framework • Provide comprehensive coverage of potential channels • of impact • Begins with definition of infrastructure based on economic • characteristics, not sectoral scope • Emphasis on service provision as main channel by which • impact occurs • Allows consideration of alternative definitions of poverty • Distinguishes direct impact on poor as users of infrastructure • services from indirect impact through induced investment • and public finances. Contribution of Infrastructure to Growth and Poverty

12. Infrastructure Investment Enterprises Government: Regulation Finances Infrastructure Service Poor People Contribution of Infrastructure to Growth and Poverty

13. Elements of Conceptual Framework • Direct impacts of infrastructure investment: environmental, • employment • Direct impacts of infrastructure service provision: poor as • users or suppliers of competing services • Indirect impacts are mediated through other markets: • Investment by enterprises (creating employment) • Impact on public finances (and service provision for the poor) • Focus is on how markets work: terms of access for the poor and • implications of market failures – influence of interests of poor on • mode of regulation Contribution of Infrastructure to Growth and Poverty

14. Evidence on Poverty-Infrastructure Links • Growth requires infrastructure, and infrastructure makes • growth more pro-poor • Water and sanitation strong positive impact on health • Rural roads (all year) most effective infrastructure investment for • rural poverty, but not the most poverty-effective form of • public expenditure (education, agriculture R&D) • Poorest may not be equipped to benefit from opportunities • created by improved infrastructure • Importance of operation of service markets (e.g. regulation or • = cartels can prevent improved roads lowering transport costs) • Some positive evidence of poverty impact of reforms (though • mainly telecommunications) Contribution of Infrastructure to Growth and Poverty

15. Main Scenarios for Poverty-Infrastructure Link • Mass poverty: infrastructure investment will be important part • of broader strategy for poverty reduction and economic growth: • Priorities will vary depending on context. • Poverty location-specific (e.g urban slums, remote highland • or island areas): targeted strategy of improving • infrastructure provision to areas of high poverty concentration • may be core of poverty reduction strategy. • Poverty limited in incidence and not directly related to geographical • location (e.g. disability, household characteristics, discrimination, • cultural factors): infrastructure unlikely to be core of poverty • reduction strategy but may play role. Contribution of Infrastructure to Growth and Poverty

16. Conclusions and Issues • Cannot expect universal empirical conclusions but can inform choices: • Place of infrastructure in a poverty reduction strategy (where to • put public money) • For a given sectoral policy or investment decision, how to • maximise poverty reduction impact • Role of Infrastructure Investment as a strategy for poverty reduction • varies between countries within the region: but increasing concentration • of poverty in “remote” rural areas, and rapid urbanisation. • Most countries in region are moving out of “Mass Poverty” so that • there may be role for more poverty-targeted infrastructure investments. • Sharp choices for use of public funds remain Contribution of Infrastructure to Growth and Poverty