Is All Infrastructure Investment Created Equal? The Case of Portugal

In this paper we analyze the effects of infrastructure investment on economic performance in Portugal using a newly developed data set. We employ a vector autoregressive approach to estimate the elasticity and marginal products of investments on twelve different types of infrastructure investment on private investment, employment and output. We find that the largest long-term accumulated effects come from investments in railroads, ports, airports, health, education, and telecommunications. For all of these infrastructures, the output multipliers are sizable enough to suggest that these investments would pay for themselves in the form of additional tax revenues. We find also that for investments in airports and health infrastructures the bulk of the effects are short-term demand side effects while for railroads and health the bulk of the effects come from long-term supply side effects. Finally, investments in health and airports show a clear pattern of decreasing marginal returns with railroads, ports, and telecommunications showing a relative stable pattern. In terms of the other infrastructure assets, we find that the economic effects of investments in municipal roads, highways, and electricity and gas are not significant or relevant. Investments in national roads, waste and waste water, and refinery infrastructures have positive economic effects but not large enough to also have a positive budgetary effects. Clearly, not all infrastructure investments are created equal along several and rather relevant dimensions from a policy perspective.