The macroeconomic impact of infrastructure investment: a review of channels

Valerio Ercolani

No 613, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper provides a critical review of the literature on the macroeconomic effects of public infrastructure investment associated with the main underlying transmission channels. Typically, this type of stimulus fosters economic activity in the medium-to-long run because the public capital stock needs time to build up and to exert its effects. However, under the current circumstances – such as considerable economic slack, policy rates constrained at zero and heightened uncertainty – the stimulus can be expansionary even at shorter horizons, i.e. from one to three years. Given the large infrastructure gaps in most emerging and advanced economies, infrastructure investment could have high returns in terms of individuals’ welfare and productivity growth. Strengthening health infrastructures, supporting maintenance investment, and coordinating infrastructure stimuli across countries emerge as particularly appropriate policies today.

Keywords: public infrastructure investment; productivity; slack; ZLB; uncertainty; fiscal multipliers; COVID-19; secular stagnation; welfare (search for similar items in EconPapers)
JEL-codes: E62 H51 H54 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-cwa and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_613_21

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