In defined in the WEF Global Competitiveness Report (2016).

In this section,
infrastructure indicators from 25 countries in LAC are compared with data from
other regions, namely: Advanced (worldwide developed economies), OECD, Asian
developing countries (DVC Asia), European developing countries (DVC Europe),
Middle East and North African countries (MENA), a further group of 70
Middle-Income countries (MICs) and the region of Sub-Saharan Africa (SSA)1.
On the basis of the specific topic and the availability of reliable data, the
focus will be given to different country-groups for each analysis. The
objective is to have an overview of the current state of infrastructure in LAC
using cross-country analysis and to identify the most significant
infrastructure deficits. Following the methodology adopted by Calderon and
Serven (2010), infrastructure can be investigated in terms of quantity,
quality, access and investments.

Figures 4 illustrates the
overall disposal of infrastructure by region, as defined in the WEF Global
Competitiveness Report (2016). The composed index includes assessments on
numerous stocks of infrastructure, such as roads, railroads, electricity, ICT
(Information and Communication technologies), ports and airports, normalized by
the population. On average, economic infrastructure in LAC compares well with
Sub-Saharan Africa and slightly better relative to other emerging markets, but
it chases relative to MENA countries and significantly lags more advanced
economies by various measures. Although infrastructure stocks have generally
increased in LAC, the regional growth negatively compare with fast growing
countries in Asia and Europe.

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More specifically, Figure 5
summarizes the trends in the availability of land transportation, electric
power, and telecommunications infrastructure over the last quarter of century
for the considered regions: Land transportation is captured by road density,
that is the total length of the road network relative to the country’s total
surface; Electricity generation capacity is a proxy for the availability of
electric power (measured per 100 persons); Telecommunication density is
measured by the total number of fixed phone lines (per 100 persons).
Information have been extrapolated from Calderon and Server (2010), and Cerra et al. (2016).In terms of road density, at the beginning of the 1980s, Latin America
was relatively on par with other developing countries in Europe and Asia.
However, land transportation has barely developed in Latin America ever since,
and by 2005 it lagged the other emerging market regions in the sample. An even
larger gap is found when isolating the LAC 6 largest economies (Argentina,
Brazil, Chile, Colombia, Mexico and Peru), in which for every 100 km2 of land, there is only
13.2 km of road, compared to an overage of 43.8 km in emerging Asia and 117 km
in emerging Europe (Cerra, 2016).When it comes to electricity generation capacity, the growth rate in Latin
America since 1980 has fallen behind any other region, with the exception of
Sub-Saharan countries. Across LAC sub-regions, Central America and the Andean
countries have significantly lagged the regional average, basically remaining
stagnant until the early 2000s, while the Southern Cone has outperformed the
rest of the continent (Calderon and Serven,
2010). More recently, over the 2003-2013 period, improvements in
electricity infrastructure networks in LAC have marked a small advance relative
to Asian developing countries, reaching slightly more than 50 kilowatts per 100
persons. Nevertheless, LAC poorly performs compared with twice that level in emerging
Europe, and the gap with advanced economies is still massive, with the latter
providing in average 279 kilowatts per 100 persons (Cerra et. al, 2016).Finally, telecommunication infrastructure shows mixed records since it
depends on the country’s rate of technology adoption. LAC trailed middle income
countries and European emerging markets during the 1980s, but the gap has been
narrowing and Latin American telecoms have gained significant ground relative
to OECD countries and to other advanced economies worldwide. Furthermore, more
recent drops in fixed telephone lines have been filled through more extensive
usage of mobile phone networks (see Figure
6), which benefit a variety of operations including payments and money
transfer services (Cerra et al.,
2016).Another aspect
that this investigation tries to shad a light on is the quality of
infrastructure. The quality of infrastructures increases growth and the speed
of economic development, especially with regard to those sectors that depend
relatively more on capital assets. In fact, evidence has been found on the
positive impact of infrastructure improvements on growth. Using a sample of 6
LAC countries, Lanau (2017) estimated that if Argentina and Colombia improved
the quality of logistics infrastructure to the sample median (Czech Republic),
the GDP growth would increase respectively by 0.15 and 0.13 percentage points.
Cerra et al. (2016), instead, offer a
detailed analysis of the deficits in infrastructure quality that LAC faces against
its export rivals, demonstrating that it has been further deteriorating the
regional competitiveness. Recognizably, the main obstacle is the “institutional
balkanization” of infrastructure projects among numerous ministries,
historically more concerned about defending their budget rather than
strengthening the degree of intersectoral cooperation (Anderson, 2016). Assessing the quality of
infrastructure is yet an issue that several entities have tried to tackle,
especially through global surveys of business conditions reflecting the views
of international experts or with firm-level surveys targeting the perceptions
of infrastructure users. One of the most comprehensive surveys is the Global
Competitiveness Report’s Executive Opinion Survey, whose results are
illustrated in Figure 7.The quality of
LAC infrastructure over the last 10 years has remained quite unchanged as per
electricity and telephony, meaning that despite the significant improvements
achieved in terms of power supply and provision of telecommunication lines, the
perceived service reliability has basically been stagnating since 2007. Indeed,
LAC remains one of the region with the lowest rate of internet access (in
average 50 percent of the population, only better than South Africa) and usage
of LTE (Long-Term Evolution) or higher networks, meaning that the instruments
and the speed of communication are still poor, especially if compared with more
developed economies (International Telecommunication Union, 2016). Furthermore, the
development of telecom networks has suffered from several environmental
contingencies. For instance, in February 2010, central Chile was hit by a
massive earthquake that severely damaged the power generation, telecommunications
and transportation infrastructure, requiring extensive rebuilding. Colombia,
instead, has only recently adopted a national 4G implementation project, given
the turbulent political past and a complex geography which have weakened the
country’s competitiveness at length. Some improvements were achieved over
1990-2000, when both phone faults and waiting times were reduced by almost 90
percent, also thanks to the technological impetus brought be the privatization
policies (Calderon and Serven, 2010). In
the energy sector, the percentage of transmission and distribution losses
relative to total output is a proxy for efficiency. Nonetheless, services deteriorated
during the 1990s generally in all the regions with the exception of East Asia
and some advanced countries. In average, 12 percent of the Latin American
population had no electricity coverage during the 2001-2013, compared to almost
full coverage in OECD countries (Cerra, 2016).

include high-quality roads, railroads, ports, and air transport and enable
entrepreneurs to get their goods and services to the market in an efficient
way. The quality of land transportation means in LAC, intended as the
percentage of paved roads and the operative rail lines, has been falling in the
last 10 years, with regional railways showing the worst result in the sample.
Furthermore, with the exception of ports, which have experienced promising
upgrades in the recent past, the overall logistics infrastructure in LAC
perform similarly to those in Sub-Saharan Africa and in minor Asian developing
countries (China, India and Korea are not included in the sample). On the other
hand, large gaps separate LAC from MENA, emerging Europe and advanced
economies. In the late 2000s, less than a quarter of the road network was paved
in Latin America, far behind the middle-income countries’ average (50 percent),
and the East Asian and the industrial countries’ norm, close to 100 percent.Perceptions on
infrastructure quality and reliability go along with the access to infrastructure
services. Universal accessibility catalyses equality of opportunity and poverty
reduction, by enabling the broad population to benefit from the economic and
social edges embedded in infrastructure. Table
2 summarizes the main findings obtained by Calderon and Serven in 2010,
integrated with more recent data provided by the World Bank. In the ICT sector,
LAC underperforms the sample as per two key indicators: access to fixed telephone
and mobile network. Moreover, in 2015, the regional use of broadband was still
22 percent points lower than the OECD rates. LAC also poorly performs in terms
of development of road infrastructure in rural areas, but it compares
relatively well with regard to water and sanitation accessibility. A special
attention to infrastructure investments is crucial since they increase the
productivity of other production factors, augment competitiveness and increase
export capacity. Conversely, inadequate infrastructure will turn into economic
bottlenecks and inefficiencies in the social sphere, discouraging investments
and constraining growth (Cerra et al.,
2016). As a matter of fact, the infrastructure gap with other regions is in
part explained by the low level of investments in LAC, mainly to be attributed
to controversial commitments of the public sector, and low levels of returns
due to economic policy distortions which have discouraged private initiatives (Selowsky and Loser, 2015).

Investments in
economic infrastructure in LAC, which represented about 4 percent of GDP during
the 1980-1985 period, experienced a sizable decline during the last decades (Perrotti and Sànchez, 2011). Figure 8 illustrates the global annual
spending on infrastructure as a percent of GDP by region1
over 1992-2013. Low investment levels in Latin America, averaging between 1 and
2 percent of GDP per year, have created significant gaps with advanced
economies and with other emerging market regions. The most meaningful factor in
the investments slow-down has to do with the inability of institutions to plan
and manage a pipeline of bankable projects, which goes vis-à-vis the
insufficient participation of public financing (Anderson, 2016).

Several studies have
suggested that Latin American countries should invest about 5 percent of GDP in
infrastructure for a prolonged arch of time until they catch up with more
advanced economies, meaning that both private and public commitment will have
to increase (Anderson, 2016; Perrotti and Sànchez, 2011). At region’s 2013 GDP,
it would require an additional investment of $120-125 billion per year (Serebrisky
et al., 2015). Much infrastructure
investments in the last decades have favoured commodity-related areas, which
implies that the overall infrastructure sector is even less robust than how it

1980-2008, the industries with greater share of investments have been
transportation and energy, respectively ranging around 1.2 and 0.8 percent of
GDP (Perrotti and Sànchez, 2011). The former has represented the principal
investment target for the public sector, aimed to foster the endogenous
mobilization of domestic resources to increase exports. Conversely, energy and
telecoms have largely benefitted from the privatization trend that took place
between 1986 and 2004, which however ended up creating monolithic supremacies of
few state-bound players rather fostering an ecosystem of inclusiveness and

Figure 9 gives an overview on the
investment trends per sector over 2008-2015, as reported by the Inter-American
Development Bank (IDB). The key finding is that investment caps affected almost
every sector in every considered country. The only virtuous cases have been
Colombia, Peru and, to some extent, Chile. The commodity price boom led to a
trade super-cycle and sustained economic growth. Substantial revenues triggered
a mechanism of macroeconomic adjustment, resulting into an increase in national
savings and improved countries’ fiscal positions. Hence, investment in infrastructure
benefitted from the capital inflows recorded during those years, and eventually
resulted essential when, at the break of the 2008 global crisis, they enabled a
countercyclical response to reduce external vulnerabilities (CEPAL, 2014)An ultimate analysis must address the type of investments undertaken in
Latin America over the last decades. In this sense, Carranza, Daude, and
Melguizo (2014) investigated over the reduction of total infrastructure
investment, explaining that the key factor was the retrenchment of central
governments after the hit of the external debt crisis in the 1980s. Until then,
public sector corresponded about 3.7 out of the total 4 percent of GDP in infrastructure
investments (see Figure 10). When
the crisis struck in the early 1980s, LAC’s governments stopped using external
credit to fund infrastructure projects, by using domestic resources. However,
this process became fiscally unsustainable in a few years, generating a drop in
public spending in infrastructure down to 1.5 percent of GDP (CEPAL, 2014). In the aftermath of
the Washington Consensus, in fact, Latin American policy makers had basically
no alternative than prioritising fiscal discipline in order to restore macro
and financial stability, and the allocations to infrastructure were generally scarified1
(Serebrisky, 2015). With weaker state budgets, the
Washington Consensus set the most viable strategies for overcoming the economic
stagnation of the 1980s. The topic is more deeply argued later on.The retrenchment of public sector was furthermore not compensated by an
adequate increase in private investments, which only accounted for 1 percent of
GDP during the 1990-2000 period. The wave of privatization gave impetus to the
inclusion of private capital in various sectors, chiefly transports, energy and
telecommunications, but it was unable to counterbalance the drop-off in public
investments and fill the gap with other regions2
(CEPAL, 2014; Carranza, Daude, and Melguizo, 2014). The key instrument by which
governments opened infrastructure services to the private sector was the
establishment of Public Private Partnerships (PPPs). This scheme splits
responsibilities between public and private sector, with the former defining
the service area, and the latter involved in the phases of project planning,
funding, implementation and management (Rozas and
Sànchez, 2004).

Nevertheless, the majority of countries in LAC were not able to convert
negative prospects of growth and low interest rates into attractive
opportunities for investors, witnessing severe institutional voids and lack of
maturity of the banking sector (Serebrisky, 2015; IDeAL, 2012). Investment on
basic infrastructure has multiplier impact on aggregate demand, by transmitting
its effect on consumption and investments. The LAC’s ecosystem has thereby been
conditioned by the drastic decline in infrastructure investments occurred over
the 1990s. Coverage and quality of public services have been affected as well
as the costs associated with mobility and logistics. In turn, both the
socio-economic environment and the regional trade potential have been

Infrastructure stocks and services, in fact, represent the backbone of
the productive structure and are instruments of well-being and enablers of
greater economic and social cohesion, allowing better connectivity and
integration (IDeAL, 2012).
Infrastructure is a fundamental capital input along all stages of economic
development and it boosts productivity and international competitiveness.
Service networks such as telecoms, energy, transports, water and sanitation
create the pillars to underpin the economic performance of countries and
markets, by creating linking mechanisms among world economies and by enabling
transactions and movement of goods and people (Rozas and Sànchez, 2004; CEPAL,

Next paragraph
is intended to provide an extensive literature foundation to the relationship
between infrastructure and productivity, explaining the theoretical and
empirical factors which have led numerous economists to conclude in favour of a
significant behavioural correlation in the long run.