Requirements for Infrastructure Investment in Latin America Under Alternate Growth Scenarios

Abstract

This study estimates requirements for infrastructure investment in 21 Latin American countries for the period 2011–2040 using a structural equation model. Needs total about 4 percent of GDP. Projections are provided for both a high-growth convergence scenario and a low-growth business-as-usual scenario. These costs represent minimum investments necessary to support expected economic growth. Costs are presented separately and in total for new-capacity investment and maintenance for 10 sectors: airports, electricity, fixed broadband, landlines, mobile telephony, ports, rail, paved roads, sanitation, and water. Country coverage comprises Argentina, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Suriname, Uruguay, and Venezuela. The model differs from past studies of regionwide long-term infrastructure investment needs in five features: (1) It considers alternate GDP growth scenarios; (2) It employs a structural equation model using instrumental variables to provide unbiased, consistent projections for both GDP growth scenarios (Instrumented variables are urbanization and the shares in GDP of agriculture, manufacturing, and services); (3) Mobile phone investment costs are not constant but instead vary with population density; (4) Two additional, wealthier countries are included in modeling to prevent forecasting outside the range of the independent variables’ values used to construct the model, and; (5) Timing of new-capacity investments is distributed over multiple years and varies by sector.