Government quality and returns to infrastructure investment

Government quality and returns to infrastructure investment

These findings claim that positive rates of returns from infrastructure investment are mediated by the current presence of adequate government institutions. Only certain types of transport infrastructure investment are connected with higher growth over the regions of Europe. Specifically, improvements in secondary road network in sound government quality conditions are associated with higher growth. In comparison, the very popular motorway development schemes which were at the centre of development strategies mainly in the periphery of Europe aren’t linked to the expected economic outcomes, even if promoted by credible, competent, and transparent local governments (which isn’t always the case).

Policy implications

Our results challenge the assumption that economic performance in less-developed regions in Europe could be boosted by linking peripheral locations with the economic core of the continent by way of high-cost, long-distance transport corridors. Conversely, our evidence supports the theory that investment in secondary roads might deliver better returns in peripheral areas by reinforcing intra-regional connectivity and fostering the productivity of local firms. However, sound local institutions are fundamental for these advantages to be unlocked via selecting the most likely projects and their effective (and timely) realisation. Therefore that ‘institution building’ should be put near the top of the regional development agenda, if other styles of development interventions – and transport infrastructure interventions specifically – are to be far better. A potential way to limit distortions in public areas investment decisions dependant on political interests, pork-barrel politics, or corruption could be to create stricter rules for project evaluation and offer technical guidance to local governments lacking the administrative capacity to choose the most profitable projects. Ex ante and ex post evaluations and in-itinere monitoring analyses and appraisals – despite increasing legislation in this respect – aren’t yet a consolidated practice in every European regions. Regions with weak government institutions need a more thorough following of their transport projects over the entire cycle and stronger coordination with the central government and the Commission.

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