by Felipe Rezende

This is the first in a series of blog posts on financing infrastructure assets

Insufficient or inadequate infrastructure in both developing and developed economies has sparked a debate about whether financing is sufficient to sustain infrastructure investment to at least keep pace with projected global GDP growth. The task of keeping the minimum investment required to maintain current levels and fostering incremental spending to close the infrastructure gap has revived the debate over the role played by each actor in closing the gap and how to finance this process (see for instance G-20 2013; OECD 2013; World Bank 2015).

One of the major post-crisis challenges is that in spite of an ultra-low interest rate environment or even negative nominal and real rates, investment has been anemic in developed and developing economies (IMF 2015). This is particularly important because, since the crisis, investment has collapsed across all sectors (public, business, and household sectors) in Europe (McKinsey 2016, 2). And in the United States, “the trajectory of net fixed capital formation, which decreased from 12 percent of GDP in 1950 to 8 percent in 2007, then fell to only 4 percent in 2014. Average depreciation rates accelerated by about 20 percent during the 1980s as companies invested in shorter-lived assets such as ICT equipment but did not compensate in terms of higher gross investment rates. This amplified the decline in net investment” (2). To make matters worse, most governments in developed and developing nations (with the exception of a few cases) are cutting back on infrastructure spending due to fiscal consolidation (Figure 1), generating a public-funding shortfall in infrastructure investment.

Figure 1

Source: Mckinsey 2016, p.11

Moreover, insufficient private investment and declining real public investment have contributed to reduce the stock of public capital as a share of output over the past three decades (Figure 2). continue reading…

The 27th Minsky Conference — “Financial Stability in a World of Rising Rates and the Repeal of Dodd-Frank” — just wrapped up yesterday. Anyone interested in the slide presentations can find them below:

Video of all the sessions, speakers, and Q&A will eventually be posted on the Institute YouTube page.