The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
One objective of government investment is to develop public infrastructure which may reduce private sector costs. In a developing economy, the scope for payoffs to investments of this sort may be particularly large. A major concern related to the recent fiscal adjustment in Mexico is that it has been carried out, in part, by depleting public infrastructure stocks.We estimate the effects of public infrastructure on private sector costs in Mexico and calculate the implied optimal infrastructure stocks. Our estimates indicate that previous results suggesting a large productive role of public infrastructure capital are not robust. There is little evidence that public infrastructure plays a large role in reducing private sector costs.