Infrastructure and sectoral output along the road to development

Public infrastructure is one of the foundations for economic growth. Empirical research has found that public infrastructure can have different effects in different sectors of the economy. The theoretical literature, however, has concentrated in one-sector growth models. This paper develops a three-sector model (agriculture, manufacturing and services) to study the effects of infrastructure. The model is calibrated and solved numerically using parameters from seven Latin American countries. Results show that the largest gains would have been obtained at an early stage of development in the decade of the 1960s. The seven Latin American countries would have also benefited from additional public investment in the 1990s, especially the service sector. This result also has implications for the early 2000s, as infrastructure expenditures have not increased from the 1990s levels. JEL Classification: O4, H5Public infrastructure, multi-sector model, Latin America,