Infrastructure and Trade in Asia
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Infrastructure and Trade in Asia

Edited by Douglas H. Brooks and Jayant Menon

Analysis of infrastructure’s role in facilitating international trade and consequently regional economic integration is still rudimentary. This original book fills that knowledge gap by exploring relevant concepts, measurement issues, aspects of the implementation of trade-related infrastructure facilities and their impacts on poverty, trade, investment and macroeconomic balances.
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Chapter 9: Infrastructure Financing: Impacts on Macroeconomic Balances

Douglas H. Brooks and Fan Zhai


9. Infrastructure financing: impacts on macroeconomic balances1 Douglas H. Brooks and Fan Zhai The public sector is still the dominant source of infrastructure financing in developing countries, although public–private partnerships play an expanding role, as does foreign direct investment. Changes in technology have led to unbundling of services in the power sector and huge private investments in telecommunications, but most of the burden of ensuring an adequate level of infrastructure services to support growth and development still lies with the public sector. Even there, there are myriad combinations of revenueraising, expenditure decentralization, financing mechanisms and risk management practices. This can be seen most clearly in large, rapidly growing developing economies. Rapid growth has been accompanied by increasing urbanization, rising incomes in the growing urban middle class and a shift towards greater consumption of services. All this has led to strong demand growth for urban infrastructure, in particular. This chapter compares and contrasts the recent experience of the People’s Republic of China (PRC) with that of India in terms of infrastructure financing and resulting implications for macroeconomic growth. Similarities and differences are highlighted, and then each country is considered in more detail. A computable general equilibrium model is employed to examine the macroeconomic implications of alternative financing experiences. In particular, options of financing through a consumption tax, a labour income tax or through debt are considered. Differential macroeconomic impacts of these options are revealed as dependent on differences in economic structure in the base period. There are...

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