Underutilized Potential : The Business Costs of Unreliable Infrastructure in Developing Countries

• Published in: IDEAS Working Paper Series from RePEc
• Main Authors: Maruyama Rentschler, Jun Erik, Kornejew,Martin Gunter Michail, Hallegatte, Stephane, Braese, Johannes Michael, Obolensky, Marguerite Anne Beatrice
• Format: Paper
• Language: English
• Published: St. Louis Federal Reserve Bank of St. Louis 01.01.2019
• Subjects: Developing countries; Economic models; Infrastructure; LDCs

This study constructs a microdata set of about 143,000 firms to estimate the monetary costs of infrastructure disruptions in 137 low- and middle-income countries, representing 78 percent ofthe world population and 80 percent of the GDP of low- and -middle-income countries. Specifically, this study assesses the impact of transport, electricity, and water disruptions on the capacity utilization rates of firms. The estimates suggest that utilization losses amount to $151 billion a year -- of which $107 billion are due to transport disruptions, $38 billion due to blackouts, and $6 billion due to dryouts. Moreover, this study shows that electricity outages are causing sales losses equivalent to $82 billion a year. Firms are also incurring the costs of self-generated electricity, estimated to amount to $64 billion a year (including annualized capital expenditure). At almost $300 billion a year, these figures highlight the substantial drag that unreliable infrastructure imposes on firms in developing countries. Yet, these figures are likely to be under-estimates as neither all countries nor all types of impacts are covered.