ASi" kUCTURE FlOR DEVELOPMENT

in countries where conditions are more favorable. Table 1.2 Average economic rates of retum
Inifastructure spending cannot, therefore, overcome on World Bank-supported projects, 1974-92
a weak climate for economic activity. Nearly twentyfive
years ago, the Broolings Transport Researh Secor 1974-2. 1983-92
Project evaluated the impact of tansport projects in Irrigation and drainage 17 13
several developing countnes and concluded simi- Telecommunications 20 19
larly that, although the investments geneay had Transport 18 21
reasonable rates of return, success depended largely Airports 17 13
on economic policy. Hghways 20 29
Another approach to assessing the economic re- Ports 19 20
turns from infrastructure investment is to examine safliays 16 12
the rates of return m a large sample of completed Power 12 11
World Bank projects. The average economic return Urban development - 23
on infrastructure projects, reestimated after loan dis--
Water and sanitaton' 7 9
busement (completion of project construction), has Water py 6
been 16 percent over the past decade-just above 1
the World Bank project average of 15 percent (Table -n.as e prects 18 16
12). Returns have been lowest (and dedining) fork - . oebis 17 I5
rigation and drainage, airports (for a very small Not available.
a.Rates are fiknanoaL not economz4m rtasof retuni.
sample), railways, power, water supply, and sewer- Swnare1iWId Bank data.
age. Why should this be so, given the expected benefits
of such investnents in developing counties?
Some of the causes relate to implementation
poblems (discussed below under '"he record of ments of other resources must be present as welL.
performance") and others to project identification The growth impact of infrastructure investments
and design. A common pattern discovered in proj- also depends on the timing and location of addiect
completion reviews of water, railway, and power tions to capacity, and on the existing imbalance beprojects
is the tendency it the time of appraisal to tween supply and demand. Because much irfraoverestimate
the rate of growth in demand for new structure consists of networks, relieving bottlenecks
production capacity and, therefore, of revenues. For at certain points of the system can produce very
the power projects in the sample, demand was over- high returns. Box 12 illustrates the repercussons in
estimated by 20 percent on average over a ten-year China's economy from critical constraints in the
operating period. In water projects, overestimation transport of coal needed for power generation.
of rates of new connections and per capita con- Adequate quantity and reliability of infrastrucsumption
also averaged about 20 percent In the ture are key factors in the ability of countries to
case of railways, until recent years projects often.as- compete in international trade, even m traditional.
sumed recovery mI demand even where railways commodities. In part because of infrastructure proW
were continually losing traffic to roads offering bet- lens, shipping costs from Ahica to Europe are 30
ter service. In twenty-rnne of thirty-one cases, percent higher for plywood (and 70 percent higher
freight traffic failed to reach its projected level, and for tuna) than those from Asia to Europe. These
in one-third, traffic actually decined.
costs have to be borne by exporters.
One important explanation for the misjudgments The competition for new export markets is espeduring
appraisal is inadequate procedures for as- cially dependent on high-quality infrastructure.
sessng demand (induding the effects of tarff in- During the past two decades, increased globalizaceases).
Oversizing and inappropriate design of in- tion of world trade has arisen not only from the libvestments
then occur, resulting in financial burdens eralization of trade policies m many countries but
on the project entities concerned. Although Bank also from major advances in communications, transprojects
may not be entirely representative, they are port, and storage technologies. These advances censubject
to more careful evaluation than many infra- ter on the management of logistics (the combination
structure investments in developing countries and of purchasin& production, and marketing funcso
may have achieved better performance than av- tions) to achieve cost savings in inventory and
erage public investments in these sectors.
working capital and to respond more rapidly to cushifrastructure
is a necessary, although not suffi- tomer demand. About two-thirds of productionand
cient, precondition for growth-adequate comple- sales in the- OECD countries are processed directly
17