Rising incomes and inequality of access to infrastructure among Latin American Households

Abstract

The question of infrastructure needs is a crucial policy one in Latin America, given evidence of large access shortfalls across all major types of infrastructure, and the increase in demand linked to the rapid growth in households’ income over the past two decades. However, how much and how fast countries should invest in each of the main infrastructure areas are largely speculative, as to date, literature on investment needs has relied exclusively on aggregate data and cross-country regressions, ignoring both potential policy and supply-side differences across settings, and variations in demand along the income distribution. This paper addresses these shortcomings, providing building blocks to better assess infrastructure investment needs across the region. It does so documenting access to services and ownership of infrastructure-related durables in the water, energy, telecom, and transport areas, based on harmonized household survey data covering 1.6 million households in 14 Latin American countries from 1992 to –2012. It provides a systematic disaggregation of access and ownership rates at different levels of income and over time, and econometrically derives the country infrastructure premium, a measure of how much a household benefits from simply being located in a given country. Within countries, the results show extensive inequality of access across the income distribution, but this is also the case for households at similar levels of income across countries. Few country fundamentals appear to be significant in explaining this variability, pointing to differences in policy choices and local constraints as important determinants. The paper derives disaggregated income elasticity measures for the full set of infrastructure indicators and uses these to estimate the time that would be needed to close the remaining gap for households at different levels of the income distribution in each country under a “business as usual” hypothesis. Under that scenario, universal access appears to still be decades away for many countries in the region. The last part discusses the policy challenges, arguing that in a context in which public budgets face strong constraints and significant increases in private investment are unlikely to be forthcoming, a large part of the solution lies in refocused investment strategies, better demand management, and improved public spending efficiency.