Improving public infrastructure in the Philippines

Abstract

This paper explores the macroeconomic effects of improving public infrastructure in the Philippines, modeling the infrastructure scale-up plan being implemented by the current administration. After benchmarking the Philippines’ level of infrastructure investment, quantity and quality of public infrastructure, and public investment efficiency relative to its neighboring countries, the analysis uses a dynamic general equilibrium model to quantitatively assess the macroeconomic implications of raising public investment expenditure with different financing schemes and different rates of public investment efficiency. Critically dependent on a model structure in which accumulation of publicly provided infrastructure raises the overall productivity of the economy, the model simulations show that (i) increasing public infrastructure investment results in sustained gains in output, (ii) the effects of improving public investment efficiency are substantial, and (iii) deficit-financed increases in public investment lead to higher borrowing costs that constrain output increases over time. These results underscore the importance of improving public investment efficiency and revenue mobilization.