© 1995 International Bank for Reconstruction and Development / The World Bank
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The Role of Infrastructure in Mexican Economic Reform
Andrew Feltenstein is with the Department of Economics at the University of Kansas, and Jimming Ha is with the Europe II Department of the International Monetary Fund (IMF). The research for this article was supported by a World Bank grant for the Infrastructure Inadequacies Project in Mexico. The authors would like to thank Frank Lysy and Daniel Ocks for their comments and assistance and Neil Roger for originally proposing the topic and offering continuous guidance.
This article estimates the relationship between the provision of public infrastructure and private output in sixteen sectors in Mexico. The sector-specific cost functions depend on wages, the cost of capital, and the nominal values of the stocks of three types of infrastructure: electricity, transport, and communications. The article concludes that infrastructure in electricity and communications generally reduces the cost of sectoral production, but transportation infrastructure tends to increase costs of sectoral production. It appears that Mexican public expenditure on electricity and communications has enhanced the productivity of private production, but expenditure on transport may actually have had a detrimental effect on private output. In addition, although in general labor and infrastructure are substitutes, in the case of electricity and communications infrastructure, capital and infrastructure are complements. In the case of transport infrastructure these conclusions are reversed.
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