Dogo Bis P.006107 DOG RP08 EcoFi Note D'analyse Macroéconomique

Analyse Economique, Financière,
Fiscale et Macro de l’aménagement

hydroélectrique de Dogo Bis
Note d'analyse macroéconomique
Ministère de l’Energie du Bénin

BENIN
RESTREINT
9 novembre 2023
RAPPORT
20231109_Dogo Bis_P.006107_DOG_RP08
Avec l’expertise reconnue de

TRACTEBEL ENGINEERING S.A.
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tél. +33 1 41 85 03 69 - fax +33 1 41 85 03 74
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RAPPORT
Nos ref. : 20231109_Dogo Bis_P.006107_DOG_RP08
Entité : Eau Afrique
Imputation : P.006107
RESTREINT
Client : Ministère de l’Energie du Bénin

Projet : Aménagement hydroélectrique de Dogo Bis
Pays/Ville : Bénin
Titre : Analyse Economique, Financière, Fiscale et Macro de l’aménagement hydroélectrique de Dogo Bis
Sous-titre : Note d'analyse macroéconomique
Auteur(s) : Paris Infrastructure Advisory
Date : 9 novembre 2023
Résumé :
Commentaires : -
Mots-clés :
Ce document est la propriété de Tractebel Engineering S.A. Toute copie ou transmission à des tiers est interdite sans un accord préalable.
Nbr pages : 81 (hors annexes)
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Avec l’expertise reconnue de
MD-04-80_Rapport_FR_avec_page_garde_avec_annexe_v09.10.19
Aménagement Hydroélectrique et
Hydroagricole de Dogo Bis
Note d'analyse macroéconomique
9 Novembre 2023
Paris Infrastructure Advisory
www.Parisinfrastructureadvisory.com
contact@parisinfrastructureadvisory.com
Client : Tractebel et Ministère de l’énergie du Bénin

Projet : Aménagement Hydroélectrique et Hydroagricole de Dogo Bis
Sujet : Note d'analyse macroéconomique
Commentaire : Résultats présentés sous réserve des commentaires du Client sur le premier
livrable : analyse documentaire. Cette note vise à servir de base d’échange avec les services
compétents du ministère de l’économie et les experts nationaux.
B 09/11/23 J. Domagalski E. Bessan L. Aljounaidi
A 26/10/23 Final J. Domagalski L. Aljounaidi
Rev JJ/MM/AA Statut Redige par Revu Par Emis Par

Table des matières
Liste des encadrés ..................................................................................................................... 0
I. Contexte ............................................................................................................................ 1
II. Impact macro-économique................................................................................................ 1
A. Analyse d’impact macroéconomique existante ............................................................. 2
B. Approche proposée pour la présente étude .................................................................. 2
B.1. Impact sur la croissance économique .................................................................... 3
B.2. Impact sur l'emploi.................................................................................................. 4
B.3. Impact sur la balance commerciale ........................................................................ 4
B.4. Impact sur la réduction de la pauvreté ................................................................... 5
C. Calculs et résultats de l’approche proposée .................................................................. 6
C.1. Impact sur la croissance économique .................................................................... 6
C.2. Impact sur l'emploi.................................................................................................. 7
C.3. Impact sur la balance commerciale ........................................................................ 8
C.4. Impact sur la réduction de la pauvreté ................................................................... 9
D. Comparaison des résultats et conclusion ...................................................................... 9
III. Annexes .......................................................................................................................... 11
A. What Have We Learned about the Effectiveness of Infrastructure Investment as a Fiscal
Stimulus ? A Literature Review (English). Policy Research working paper, World Bank Group
11
B. La croissance économique et la qualité des institutions réduisent-elles la pauvreté et
les inégalités en Afrique de l'Ouest ? (English). Journal of Policy Modeling ...................... 12
Liste des encadrés

Encadré 1. Les indicateurs sociaux et économiques du Bénin (2022) ..................................... 1
Encadré 2. Modèles de simulation pour estimer l'impact macroéconomique de Dogo Bis ...... 2
Encadré 3. l'impact du projet sur la croissance économique ................................................... 7
Encadré 4. Comparaison des résultats : analyse existante (2017) et approche proposée ...... 9
Dogo Bis
I. Contexte
Le gouvernement du Bénin envisage le développement de l’aménagement de Dogo Bis sur la
Ouémé.
L’aménagement sera développé en deux lots :
● Lot 1 : « Aménagement hydroélectrique » comprenant : barrage, usine de production
d’électricité et raccordement au réseau électrique.
● Lot 2 : « Aménagement hydroagricole et agro-industriel » comprenant : le canal principal,
les canaux secondaires et tertiaires, le périmètre irrigué et les agro-industries.
Chaque lot sera développé sous le principe d’un partenariat public-privé (PPP) et sera donc porté
chacun par une société de projet distincte, respectivement la Société à Objet Spécifique SOS-
Electricité (SOS-E) et la Société d’économie mixte SEM.
Dans le cadre du processus de développement du projet, le gouvernement du Bénin souhaite en
particulier disposer d’une analyse de l’impact macroéconomique du projet, évaluant la
contribution du projet à la croissance économique du Bénin, à la création d’emploi et à la balance
commerciale.
II. Impact macro-économique

La contribution du projet à la croissance économique du pays ainsi que sa contribution directe,
indirecte et induite à la création d'emplois seront évaluées dans les phases de construction et
d'exploitation. L'impact du projet sur la balance commerciale du Bénin en termes d'importations
d'électricité et de denrées alimentaires et sur la réduction de la pauvreté sera estimé.
L’estimation est basée sur une approche usuellement utilisée dans les analyses d’impact
macroéconomique de projets d’infrastructures. Une telle approche a par exemple été mise en
œuvre pour l’estimation de l’impact macroéconomique de la mise en place d’une société de
production d’électricité au Bénin 1.
Encadré 1. Les indicateurs sociaux et économiques du Bénin (2022) 2
Population, total : 13,352,864

Croissance de la population (% annuel) : 2.7
PIB (USD courants) : 17.4 milliards
PIB par habitant (USD courants) : 1,303.2
Croissance du PIB (% annuel) : 6.3
1 Etude de faisabilité d’une société de production d’électricité au Bénin, Tractebel pour MCA-Benin, 2017-2018
2 Banque Mondiale, https://donnees.banquemondiale.org/pays/benin
Note d'analyse macroéconomique 1

Dogo Bis
A. Analyse d’impact macroéconomique existante

Encadré 2. Modèles de simulation pour estimer l'impact macroéconomique de Dogo Bis
La méthodologie du Ministère de l'Eau et des Mines de la République du Bénin combine trois

modèles de simulation pour estimer l'impact macroéconomique du projet Dogo Bis 3
1. Méthode du multiplicateur de la matrice de comptabilité sociale (MCS) – la méthode
évalue comment des injections exogènes dans une branche de l'économie, des
investissements par exemple, affectent les autres branches de l'économie et
l'économie entière, au regard des liens entre les branches. La MCS utilisée a été
élaborée par l'INSAE pour l'année 2007.
2. Modèle économétrique en données de panel – le modèle prend en compte les
expériences de pays comparables (l'Éthiopie, le Ghana, le Sénégal, la Tanzanie et le
Togo, observés sur la période 1988 - 2013) qui ont connu l'émergence énergétique
pour estimer l'impact transformationnel probable de l'exploitation des barrages
hydroélectriques sur la croissance économique.
3. Modèle de Simulation et d'Analyse des Réformes Economiques (MOSARE) – l'objectif
principal du modèle est de projeter les recettes budgétaires qui respectent les
équilibres macro-économiques et sectoriels. La partie macro-économique du
MOSARE est complétée par un module de micro-simulations pour mesurer l'impact de
la croissance projetée sur la pauvreté. Il calcule les indicateurs de pauvreté associés
aux projections macro-économiques et établit pour tout cadre macro-économique
produit par le modèle, un profil de pauvreté. La démarche consiste à relier les résultats
des projections macro-économiques aux données sur les consommations/revenus
extraites d'une enquête budget-consommation des ménages (de EMICOV de 2011).
Les résultats concernant l'impact macroéconomique du projet du Ministère de l'Eau et des
Mines de la République du Bénin :
Indicateurs Phase d’investissement Phase d’exploitation
Impact sur la croissance économique 1.4% 1.6%
(en moyenne annuelle par rapport à la
situation sans projet)
Impact sur l’emploi (directs et 178,000 211,703
indirects)
Baisse du taux de pauvreté 1.3% 1.5%
B. Approche proposée pour la présente étude

Sans accès aux outils et aux données utilisés pour l’étude susmentionnée, la présente étude ne
peut pas répliquer l’approche décrite plus haut. Une approche alternative est proposée. Les
résultats de celle-ci seront mis en cohérence, dans la mesure du possible, avec les résultats de
l’étude précédente. Ses conclusions feront l’objet d’un échange soutenu avec les experts
Béninois.
3 Projet d'aménagement des grands barrages hydroélectriques multifonctions sur le fleuve Ouémé au Bénin, Etude
stratégique et technico-économique, Rapport Final (Aout, 2017)

Dogo Bis
B.1. Impact sur la croissance économique

B.1.1. Phase de construction
Dans la phase de construction du projet, l’impact du projet sur la croissance économique est
évalué tenant compte de l’effet multiplicateur.
L'étude de 2021 menée par le bureau de l'économiste en chef des infrastructures de la Banque
Mondiale (octobre 2021) estime que l’effet multiplicateur lié aux dépenses d'infrastructure est égal
à 1.5 (en moyenne dans tous les états de l'économie), ce qui signifie qu'un dollar d'investissement
public génère 1,5 dollar d’activité économique 4.
La valeur de 1,5 est l'effet multiplicateur moyen observé via l'analyse de méta-régression de 98
études empiriques (vector autoregressive analysis, VAR) à travers le monde avec plus de 1,800
observations sur les effets multiplicateurs et le contrôle du système politique et du niveau de
développement économique des pays étudiés.
L’impact du projet sur le PIB du Bénin sera estimé sur un pas de temps annuel à l’aide de l’équation
macroéconomique standard :
∆𝑃𝑃𝑃𝑃𝑃𝑃 = 1.5 × 𝐼𝐼
Où : ∆𝑃𝑃𝑃𝑃𝑃𝑃 est la variation de PIB annuelle induite par le projet dans sa phase de construction
𝐼𝐼 : est le montant d’investissement annualisé pour l’ensemble des composante des projets
L’impact du projet sur la croissance économique en découlera considérant :
∆𝑃𝑃𝑃𝑃𝑃𝑃
𝑔𝑔 =
𝑃𝑃𝑃𝑃𝑃𝑃
Où g est la croissance économique pour une année donnée.
B.1.2. Phase d’exploitation

Dans sa phase d’exploitation, le projet génèrera de la croissance par deux biais :
Croissance de la production agricole :
Le projet génèrera 12 Mds FCFA de production agricole par an 5, représentant 0.1% de croissance
économique pour la première année de production (un an après la mise en service des
infrastructures d’irrigation)
Croissance économique multisectorielle résultant de la mise à disposition d’énergie
électrique.
En 2010, l’intensité d’électricité dans l’économie Béninoise 6 était de 0.33 kWh/USD, avec des
objectifs d’efficacité énergétique permettant d’atteindre 0.32kWH/USD en 2020 et 0.21 kWh/USD
en 2030. L’intensité énergétique en 2030 sera retenue pour l’analyse et appliquée au productible
du projet afin de calculer l’impact de la mise à disposition d’électricité sur la production au Bénin.
4 Vagliasindi,Maria; Gorgulu,Nisan. What Have We Learned about the Effectiveness of Infrastructure Investment as a
Fiscal Stimulus ? A Literature Review (English). Policy Research working paper,no. WPS 9796, Washington, D.C. :
World Bank Group. http://documents.worldbank.org/curated/en/178841633526651703/What-Have-We-Learned-
about-the-Effectiveness-of-Infrastructure-Investment-as-a-Fiscal-Stimulus-A-Literature-Review
5 Aménagement hydroélectrique de Dogo Bis, Schéma d’aménagement hydroagricole, Tractebel Enginering France,
Février 2023
6 Plan d’Action National d’Efficacité Energétique (PANEE), Ministère de l’énergie, Juillet 2015.

Dogo Bis
Cet impact monétaire sera ensuite rapporté au PIB pour calculer la croissance économique
attendue l’année de mise en service de l’ouvrage.
B.2. Impact sur l'emploi

Le projet génèrera des emplois directs et indirects au Bénin. L’organisation internationale du
travail estime qu’une heure de travail au Bénin génère 4.16 7 USD de PIB mesuré en parité de
dollar d’achat de 2017, ou 1.55 USD de PIB en dollars courants 2017 8. A raison de 8 heures de
travail par jour, de 24 jours ouvrés de congés payés et de 13 jours fériés par an, un emploi génère
1792 heures de travail annuelles et 2778 USD de PIB par an.
L’impact du projet sur l’emploi découlera de ce ratio emploi-PIB et de l’impact du projet sur la
croissance économique évalué plus haut.
B.3. Impact sur la balance commerciale

B.3.1. Import d'électricité
A l’heure actuelle, le Bénin importe une part substantielle de son électricité. Le développement de
la centrale hydroélectrique réduira les imports et améliorera la balance commerciale extérieure
du Bénin.
L'étendue de la substitution des importations d'électricité sera évaluée en analysant le modèle de
dispatching économique saisonnalisé (voir chapitre : Bénéfices de la centrale hydroélectrique) 9.
Cette approche permettra de déterminer l’impact du projet sur la réduction des imports. L’analyse
retiendra la valeur de la substitution à l’année de mise en service.
Le coût de l’électricité importée aux différentes frontières sera pris en compte pour valoriser la
substitution aux imports d’électricité en termes monétaires.
B.3.2. Balance commerciale de produits alimentaires

L’addition envisagée de plus de 5,000 ha de terres arables irriguées résultera en une
augmentation de la production agricole, discutée et évalue dans le chapitre : Bénéfices de l’agro-
industrie. Cette production agricole améliorera la balance commerciale, par une réduction des
imports de riz et une augmentation des exports de produits maraichers.
Réduction des imports
La production de riz du projet se substituera à des imports de riz. L’impact sur la balance
commercial du pays est calculé avec l’équation suivante :
Quantités de riz produites par le projet x prix du riz importé
7 https://ilostat.ilo.org/fr/topics/labour-productivity/
8 En rapportant la productivité horaire en PPP au PIB par habitant en PPP 2017 (2934 USD PPP . Source :
https://perspective.usherbrooke.ca/bilan/servlet/BMTendanceStatPays?codePays=BEN&codeTheme=2&codeStat=N
Y.GDP.PCAP.PP.CD) et en multipliant par le PIB courant par habitant de la même année (1095 USD. Source : google)
9 Analyse basée sur : Plan directeur de développement du sous-secteur de l’électricité horizon 2045, IED, Avril 2022 et
les informations du Client, e-mail de M. Arnaud Zannou Fwd: Projet Dogo-bis: Hypothèses, données et documents pour
l'analyse économique et financière ; 9/22/2023 11:19 AM

Dogo Bis
Le prix du riz importé utilisé dans l’équation est égal à 1,175 FCFA/kg 10.
Augmentation des exports
L'analyse tiendra également compte du potentiel d'exportation de la production maraichère. La
valeur économique des biens exportés sera calculée via l'équation d'estimation suivante :
Quantités de tomates et piments produites par le projet x prix à l’export
Prix à l’export = prix sur le marché de Rungis x 0.5
La déquote de 50% du prix de la marchandise sur le marché de Rungis corresponds au coût de
la logistique internationale.
Les prix issus du marché de Rungis sont les suivants 11 :
● Pour les tomates : 1.65 EUR/kg
● Pour les piments : 2.50 EUR/kg
B.4. Impact sur la réduction de la pauvreté

Le projet contribuera positivement à la croissance économique du Bénin. La croissance
économique a un impact sur la réduction de la pauvreté 12.
Selon une étude récente publiée dans le Journal of Policy Modelling La croissance économique
et la qualité institutionnelle réduisent-elles la pauvreté et les inégalités en Afrique de l'Ouest ? 13
(2022) une augmentation de 1% de la croissance économique est associée à une réduction de la
pauvreté en Afrique de l'Ouest de 1.58% (intervalle de confiance 90%: 0.87% ; 1.80%).
L’étude s’appuie sur les données du Burkina Faso, de la Côte d’Ivoire, de la Gambie, du Ghana,
de la Guinée, de la Guinée-Bissau, du Mali, du Niger, du Nigeria, du Sénégal, du Sierra Leone et
du Togo. Elle examine les données de panel annuelles entre 1984 et 2015 pour ces douze pays
d'Afrique de l'Ouest. La régression contrôle l'inégalité des revenus, les qualités institutionnelles, le
système politique et les investissements directs étrangers, le niveau initial de scolarisation primaire
en tant que mesure de l'influence de l'éducation.
Ce critère de jugement est corroboré par d'autres études. Plus particulièrement, l'étude réalisée
en 2020 par les économistes nigérians de l'Université Covenant qui a obtenu la valeur de 2,5%
tout en tenant compte d'un facteur important d'inégalités de revenus associé au trilemme
croissance-inégalité-pauvreté, où la croissance économique réduit simultanément la pauvreté
mais augmente les inégalités de revenus 14. Cependant, la première étude citée est préférée car
10 Institut national de la statistique et de l'analyse économique, INStaD/DCNSE-DDD, décembre 2022 :

https://instad.bj/images/docs/insae-
publications/mensuelles/archives/IHPC_2022/12.%20IHPC_ann%C3%A9e_2014_d%C3%A9cembre_2022.docx
11 Réalisation DRIAAF Ile de France - SRISE - Centre RNM RUNGIS, marché du 04-10-2023,
https://rnm.franceagrimer.fr/prix?M0123:MARCHE
12 Ravallion, M. et Chen, S. (1997). Que peuvent nous apprendre les nouvelles données d'enquête sur les changements
récents dans la répartition et la pauvreté ? Revue économique de la Banque mondiale, 11, 357-382.
13 Kouadio, Hugues Kouassi et Lewis-Landry Gakpa. « La croissance économique et la qualité des institutions réduisent-
elles la pauvreté et les inégalités en Afrique de l'Ouest ? » Journal of Policy Modeling 44.1 (2022) : 41-63. ISSN 0161-
8938. https://doi.org/10.1016/j.jpolmod.2021.09.010.
14Bourguignon, François (2004) : The Poverty-growth-inequality triangle, Working Paper, No. 125, Indian Council for
Research on International Economic Relations (ICRIER), New Delhi

Dogo Bis
elle étudie spécifiquement les pays d'Afrique de l'Ouest, tandis que la seconde examine l'ensemble
de l'Afrique subsaharienne.
En 2019, le taux de pauvreté nationale était à 38,5 % 15, correspondant à 4.7 millions de pauvres.
L'impact du projet sur la réduction de la pauvreté sera donc calculé en multipliant sa contribution
estimée en pourcentage à la croissance économique du Bénin par l'estimation de 1.58 points
(intervalle de confiance 90%: 0.87 ; 1.80).
C. Calculs et résultats de l’approche proposée
C.1. Impact sur la croissance économique

C.1.1. Phase de construction
La période de construction du barrage et de la centrale hydroélectrique de Dogo Bis est de cinq
ans (2024-2028) pour une mise en service en 2029. Le développement des infrastructures
d’irrigation gravitaire s’étalerait sur deux ans 16, à partir de 2027 pour une mise en service en 2029.
CAPEX
341 M EUR
Barrage, Usine et Ligne
223 Mds FCFA
Mesures environnementales et sociales 23 Mds FCFA
Infrastructures gravitaires d'irrigation 35 Mds FCFA
Infrastructures routières 23 Mds FCFA
Total 304 Mds FCFA
Compte tenu de l'effet multiplicateur (égal à 1.5), pendant la phase de construction, le projet
générera 74 Mds de FCFA supplémentaires de PIB par an au cours des trois premières années
et les 117 Mds de FCFA supplémentaires par an au cours des deux dernières années lorsque le
développement des infrastructures agricoles irriguées aura lieu.
Ce PIB supplémentaire ajoutera +0.65% à la croissance économique prévue par le FMI en
moyenne au cours des trois premières années et de +0.88% au cours des deux dernières années
de la phase de construction du projet. Sur sa période de construction, le projet ajoutera +0.74%
à la croissance du Bénin.
15https://www.banquemondiale.org/fr/country/benin/overview#:~:text=La%20population%20comptait%2013%2C35,a
ctifs%20occup%C3%A9s%20dans%20l'informel.
16 Hypothèse basée sur l’expérience du consultant

Dogo Bis
C.1.2. Phase d’exploitation

Pendant la phase d’exploitation, le projet aura un impact sur la croissance économique du pays via
deux canaux : l’augmentation de la production agricole et la croissance économique multisectorielle
résultant de la mise à disposition d’énergie électrique.
L'irrigation de 5,384 hectares 17 se traduira par 19,545 tonnes supplémentaires de riz, 12,652 tonnes
de tomates et 5,235 tonnes de piments par an (les premiers revenus étant réputésperçus en 2030,
l'année suivant l’entrée en opération du périmètre irrigué). La valeur ajoutée de l'augmentation de la
production agricole est estimée à 10 Mds de FCFA par an (recettes de vente de la production
agricole nette des coûts des intrants).
L'impact de la croissance économique multisectorielle est calculé en tenant compte de l'intensité
énergétique de l'économie béninoise (0.21 kWh/USD)18 et de l'électricité supplémentaire rendue
disponible sur le marché béninois grâce au projet. Une partie de la production hydroélectrique du
projet se substituera aux imports d’électricité : cette électricité ne sera pas prise en compte dans le
calcul de la croissance multisectorielle. La part de l’énergie du projet destinée à accroitre
l’approvisionnement en électricité sur le marché Béninois est estimée par l'analyse du modèle du
dispatching économique pour le secteur de l'énergie.
L'année de la mise en service de Dogo Bis (2029), la centrale hydroélectrique produira 331 GWh,
dont 248 GWh supplémentaires19 et 84 GWh de substitution aux importations d'électricité. La
disponibilité de cette électricité supplémentaire génèrera 1179 MUSD de production intérieure
supplémentaire, ou une augmentation du PIB de +683 Mds FCFA supplémentaire.
Encadré 3. l'impact du projet sur la croissance économique
Phase de Cinq premières années Au-delà des cinq

construction de la phase d’exploitation premières années de
(2024-2028) (2029-2033) la phase d’exploitation
(2034-2045)
Impact sur la croissance +0.74% +4.2% +3.4%

économique
C.2. Impact sur l'emploi

La stimulation économique générée par le projet créera des emplois directs et indirects. En
supposant qu'un travailleur moyen au Bénin génère 2,778 USD 20 ou 1,609,616 FCFA de PIB par
an, l’impact du projet sur le PIB génèrera 46,000 nouveaux emplois (directs et indirects) au cours
des trois premières années de la phase de construction, et 27,000 autres au cours des deux
dernières années lorsque les travaux sur le système d'irrigation auront lieu.
17 Aménagement hydroélectrique de Dogo Bis, Schéma d’aménagement hydroagricole, Tractebel Enginering France,
Février 2023
18 Plan d’Action National d’Efficacité Energétique (PANEE), Ministère de l’énergie, Juillet 2015.
19 Valeurs en attente de vérification
20 OIT, https://ilostat.ilo.org/fr/topics/labour-productivity/

Dogo Bis
Au cours de l'exploitation, le projet générera 500,000 nouveaux emplois supplémentaires,

principalement grâce à l'augmentation de l’activité économique rendue possible grâce à la
disponibilité de l'électricité.
Dans l'ensemble, le projet devrait créer 573,000 nouveaux emplois directs et indirects 21.
C.3. Impact sur la balance commerciale

C.3.1. Import d'électricité
La construction et la mise en service du barrage de Dogo Bis et de la centrale hydroélectrique
d'une puissance installée de 128 MW entraîneront la substitution de 84 GWh 22 d’électricité
importée du Ghana et du Nigeria par une production nationale d’électricité, et ce dès la première
année de mise en service – 2029.
La valeur des importations d'électricité ainsi substituée est estimée à 4,4 Mds de FCFA.
C.3.2. Produits alimentaires

Le développement de l'agriculture irriguée se traduira par l'ajout de 4,493 ha de riziculture irriguée
qui augmenteront la production nationale de riz de 19,545 tonnes par an. L'augmentation de la
production nationale permettra de diminuer les imports de riz, pour une valeur de 23 Mds de FCFA
par an (en supposant que le coût du riz importé soit égal à 1,175 FCFA le kilogramme 23).
L'agriculture irriguée sera également dédiée à la production de tomates et de piments (445.5 ha
pour chacune des cultures). Cela produira 12,652 tonnes de tomates et 5,235 tonnes de piments
supplémentaires par an. Toute chose égale par ailleurs, cette production se substituera aux
imports ou sera exportée. L’impact de cette production agricole sur la balance commerciale est
estimé à +11,2 Milliards de FCFA.
Au total, l'augmentation de la production agricole devrait améliorer la balance commerciale du
Bénin de 34,2 Milliards de FCFA par an.
C.3.3. Impact total sur la balance commerciale

L'impact total du projet sur la balance commerciale au cours de la première année de mise en
service du Dogo Bis (2029) est estimé à 38.6 Mds de FCFA. La balance commerciale du Bénin
en 2022 a été négative et s'est établie à -673 Mds de FCFA selon la Banque Centrale des États
de l'Afrique de l'Ouest (BCEAO) 24. Toute chose égale par ailleurs, à sa mise en service, le projet
améliorera la balance commerciale du Bénin de +5.7%.
21 La création d'emplois directs (dans les travaux de construction et la phase d'exploitation du barrage, de la centrale
hydroélectrique et du système d'irrigation ainsi que dans l'agriculture irriguée) est négligeable par rapport à la création
d'emplois indirects résultant de la contribution du projet à la croissance économique générale. . Il est supposé ne pas
dépasser dix mille.
22 Valeurs en attente de vérification
23 Institut national de la statistique et de l'analyse économique, INStaD/DCNSE-DDD, décembre 2022 :
https://instad.bj/images/docs/insae-
publications/mensuelles/archives/IHPC_2022/12.%20IHPC_ann%C3%A9e_2014_d%C3%A9cembre_2022.docx
24 BCEAO, https://edenpub.bceao.int/rapportPredefini.php

Dogo Bis
C.4. Impact sur la réduction de la pauvreté

Le projet contribuera à la croissance économique du Bénin et aura un impact positif sur la
réduction de la pauvreté. Tenant compte d’une diminution de 1.58% (intervalle de confiance 90%:
0.87% ; 1.80%) du taux de pauvreté pour chaque pourcentage d'augmentation de la croissance
économique, le projet devrait réduire le taux de pauvreté de 1.02% (0.56% ; 1.17%) par an en
moyenne au cours des trois premières années de la phase de construction et de 1.39% (0.76% ;
1.59%) en moyenne au cours des deux dernières années lorsque les travaux de construction du
système d'irrigation ont lieu. La réduction annuelle moyenne du taux de pauvreté en phase de
construction est estimée à 1.17% (0.64% ; 1.34%).
Au cours de la première année de la phase d’exploitation (2029), le projet augmentera la croissance
économique de 4.68%, ce qui se traduira par une réduction estimée de la pauvreté de 7.4%
(4.06% ; 8.44%).
D. Comparaison des résultats et conclusion

Encadré 4. Comparaison des résultats : analyse existante (2017) et approche proposée
Analyse Approche proposée

existante
Impact sur la croissance économique

(en moyenne annuelle par rapport à la situation sans projet)
Phase de construction (2024-2028) 1.4% 0.74%
Cinq premières années de la phase 1.6% 4.2%

d’exploitation (2029-2033)
Impact sur l’emploi (directs et indirects)
Phase de construction (2024-2028) 178,000 +72,818
Phase d’exploitation 211,703 +574,307
Baisse du taux de pauvreté
Phase de construction (2024-2028) 1.3% 1.17% (intervalle de confiance

90%: 0.64% ; 1.34%)
Cinq premières années de la phase 1.5% 6.66% (intervalle de confiance

d’exploitation (2029-2033) 90%: 3.66% ; 7.6%)
Impact sur la balance commerciale
Première année de la phase Pas considéré +38.6 Mds FCFA

d'exploitation (2029)
(Réduction de 5.74% du déficit
de la balance commerciale)

Dogo Bis
L’analyse 2017et l’analyse proposée s’appuient sur les mêmes concepts macroéconomiques
mais utilisent des données et des outils différents. Malgré cette différence des outils, les deux
analyses concordent sur l’importance du projet pour l’économie du Bénin.
Par rapport à l’analyse 2017, l’approche proposée revoit à la baisse les impacts du projet sur sa
phase de construction et largement à la hausse sur sa phase d’exploitation. Une part importante
des impacts favorables résulteront de la mise à disposition de l’électricité. La réalisation de la
croissance économique, des emplois et de la réduction de la pauvreté estimée est conditionnée
à l’utilisation productive de l’électricité produite.

Dogo Bis
III. Annexes
A. What Have We Learned about the Effectiveness of
Infrastructure Investment as a Fiscal Stimulus ? A Literature
Review (English). Policy Research working paper, World
Bank Group

Public Disclosure Authorized
Policy Research Working Paper 9796

What Have We Learned about the Effectiveness

of Infrastructure Investment as a Fiscal Stimulus?
A Literature Review
Maria Vagliasindi
Nisan Gorgulu
Infrastructure Chief Economist Office

October 2021
Policy Research Working Paper 9796
Abstract
Since the Great Depression of the 1930s, and through the than public investment. An important exception is when
more recent Asian Crisis of 1997 and Great Recession of fiscal and monetary policies are closely coordinated and
2008/09, governments have experimented with Keynesian interest rates approach zero, conditions that provide the
style fiscal stimulus to support employment and acceler- strongest evidence for the efficacy of public investment
ate economic recovery. The effectiveness of these policies multipliers. Other institutional factors also play a crucial
depends on the size of fiscal multipliers. A large body of role in determining the size of the public investment mul-
economic literature has estimated such multipliers, with tiplier, in particular the country’s absorptive capacity, and
gradually increasing precision, due to econometric improve- the selection of high-quality shovel ready projects. However,
ments and better ways to identify fiscal impulses. Overall, there is limited empirical evidence available on the magni-
the largest multipliers are found to be associated with public tude of fiscal multipliers in developing country settings, or
investment, as opposed to other types of spending. Such for infrastructure sectors or subsectors specifically. The few
public investment multipliers are typically below one in the studies available suggest that certain types of green infra-
short run, but studies with multi-year horizons suggest that structure (energy efficiency, solar energy, and so forth) may
values higher than unity can be attained over time. The size bring employment benefits in the short run, while innova-
of multipliers is sensitive to economic conditions. During tive digital infrastructure may yield longer-run benefits for
recessions, and periods of high unemployment, transfer economic growth. The relevance of these findings to the
payments appear sometimes to offer higher multipliers current COVID-19 crisis is explored.
This paper is a product of the Infrastructure Chief Economist Office. It is part of a larger effort by the World Bank to
provide open access to its research and make a contribution to development policy discussions around the world. Policy
Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted
at mvagliasindi@worldbank.org and ngorgulu@worldbank.org.
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development
issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the
names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those
of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and
its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
Produced by the Research Support Team

What Have We Learned about the Effectiveness of Infrastructure Investment
as a Fiscal Stimulus? A Literature Review*
Maria Vagliasindi and Nisan Gorgulu**
JEL: C54, E32, E62, H20, H5, N10, Q4, R4

Keywords: Infrastructure investment, fiscal stimulus, economic growth, COVID-19, infrastructure
stimulus, countercyclical policy
*Special thanks go to Luis Andres, Tito Cordella, Vivien Foster, Fernanda Ruiz-Nunez and Stephane Straub for the
excellent comments and insightful suggestions on a previous draft of the paper and Fan Zhang for her initial work on
this topic summarized in Foster, Vivien (2020) Addressing crisis through infrastructure Official Monetary and
Financial Institutions Forum, Op-Ed.
** Maria Vagliasindi is Lead Economist in the Chief Economist Office of the Infrastructure Practice Group, and Nisan
Gorgulu is Short Term Consultant in the same unit.
1. Introduction
According to the Keynesian approach, government spending can be used as a powerful stimulus,
particularly during times of high unemployment. A large body of economic literature, starting from the
Great Recession, has estimated fiscal multipliers first focusing on overall government spending, and then
disentangling some subcomponents, such as public investments, and in few cases public infrastructure
investment. The effectiveness of fiscal stimulus packages features prominently in public debates
surrounding the current COVID-19 crisis, as policy makers seek to understand whether encouraging public
investment/infrastructure would help to raise economic growth, increase productivity, and crowding in the
private sector.
The objective of this paper is to review the academic literature on fiscal multipliers in general, as well as
the efficacy of the fiscal response to previous crises in particular, so as to draw the key lessons that can be
applied to the current COVID-19 crisis. Despite our focus being on investment in infrastructure for
developing countries, this nonetheless leads us to a broader examination on the fiscal multiplier literature
across all types of spending, much of which centers on developed countries due to limitations in data and
available research.
Ramey's (2011) pioneering contribution, surveying the literature after the 2009 financial crisis, finds fiscal
spending multipliers for developed economies within the 0.5 to 2 range. Subsequent contributions --
including Ramey (2019) -- refine such estimates, coming up with a narrower 0.6 to 1 range. The narrowing
range of estimates are partly due to new techniques used to compute fiscal spending multipliers. In a
nutshell, the encouraging news is that their value is positive but less than or equal to unity, meaning that
spending raises gross domestic product (GDP), but does not stimulate additional private activity and may
crowd it out.
The remainder of the paper is structured as follows. Section 2 reviews the key findings on the size of fiscal
multipliers. Section 3 provides a historical perspective on the effectiveness of fiscal stimulus during crises.
Section 4 provides early evidence of stimulus packages announced during the COVID-19 pandemic.
Section 5 draws preliminary policy recommendations.
2. Evidence on the Magnitude of Fiscal Multipliers

Fiscal multipliers are generally derived from the calibration of New Keynesian DSGE models, from
structural macro-econometric models, and the so-called narrative method. Since the work of Fatás and
Mihov (2001) and the seminal contribution by Blanchard and Perotti (2002), empirical estimates of fiscal
multipliers tend to rely on vector autoregressive (VAR) models, with new contributions increasingly
making use of sophisticated identification techniques to address the possible endogeneity of fiscal shocks.
While the long time series available for countries such as the US allows for the use of narrative methods to
identify exogenous shocks (Ramey, 2011), estimates based on shorter time series for European and
developing countries still rely on less refined methods. As noted in Kraay (2012), whereas different types
of government spending may have different short-run effects on output identify disaggregated multipliers
is limited by imperfect data on the composition of spending. Identifying a plausible identification strategy
for total spending is hard enough. Once different subcomponents of government spending are considered,
separate instruments for the different types of spending would need to be considered, which makes the
problem extremely challenging.
2
The narrative approach constitutes a methodological improvement upon the traditional measurement of
fiscal shocks. The structural VAR methodology, which employs output elasticities of expenditure to filter
out automatic stabilizers, may fail to capture exogenous policy changes correctly, because changes in
expenditure are not only due to output developments and discretionary policy, but may also be attributable
to asset and commodity price movements. The narrative approach instead seeks to identify exogenous fiscal
shocks directly. In addition, SVAR models by providing “average” multiplier may not be able measure
accurately fiscal multipliers in the case countries have been implementing major structural changes. Finally,
they may not be able capture state-contingent multiplier unless they employ non linear estimations. One
advantage of DSGE models is that they describe the behavior of the economy as a whole by analyzing the
interaction of many microeconomic decisions. However, results of simulations tend to be sensitive to the
choice of certain parameters (e.g., degree of price and wage rigidities, investment adjustment cost, and
proportion of liquidity-constrained agents) and to the specific modeling assumptions, especially if the
models are calibrated rather than estimated.
To illustrate how different definitions of the multiplier can lead to strikingly different estimates, Ramey
(2019) computes the effects of fiscal spending shocks, with three different methods. The first one follows
the approach of Blanchard and Perotti (2002), focusing on the ratio between the peak of the response of
output and the impact response of fiscal spending. This method leads to a ‘quasi‐multiplier’ because it
overlooks the role played by fiscal spending persistence. The second one follows Mountford and Uhlig
(2009) proposing computing cumulative fiscal multipliers discounting the future realization of output and
fiscal spending as predicted by the VAR impulse responses. The third one based on the analysis of Hall
(2009) and Barro and Redlick (2011) avoids the use of the ratio between output over public spending
conversion ratio to convert the estimated elasticities to dollar terms (by transforming the variables employed
in the analysis to the same units before the estimation of the econometric model). This is achieved by
dividing them either by past real GDP or by past real potential GDP. 1
The key conclusion from Ramey’s (2019) comparison is that the calculation of multipliers à la Blanchard
and Perotti (2002) can induce a substantial upward bias in the figures related to this spending multiplier.
Once the persistence of spending is taken into account, the multiplier becomes less than one. Getting rid of
the conversion factor reduces even further the multiplier, at least conditional on the data set employed by
Ramey (2019).
In sum, the more plausible lower-end estimates of the fiscal multipliers come from more data-driven time
series and narrative methods, while the upper bounds are the outputs of more sophisticated calibrated
models, based on new Keynesian types of model and the use of vector autoregressive (VAR) models.
However, the calibration sometimes relies on strong assumptions either in the theoretical models or in the
econometric analyses to identify the fiscal policy effect.
In the following sub-sections, we explore the range of multipliers, depending on the fiscal instrument used,
on the “state” of the economy as well as the composition of government spending, focusing on infrastructure
investments.
Within sections 2.1 and 2.2, the concept of “multiplier” used to capture the impact of fiscal stimulus
packages is simply the ratio of the expected change in output (GDP) over the proposed government outlay.
1
The use of this conversion factor is problematic for two reasons. First, it is unstable over long sample periods. Second, as noted
by Sims and Wolff (2018), the numerator is acyclical while the denominator is procyclical. Hence, the ratio is procyclical too,
which implies that the use of a constant ratio overestimates the spending multiplier in recessions (and underestimates it in
expansions).
3
2.1 Size of Multipliers across Fiscal Instruments
Gechert and Rannenberg’s (2018) meta-regression analysis sheds additional light on how the range of
multipliers varies, depending also on the fiscal instrument used. The summary statistics (displaying the
minimum, maximum, as well as the mean) are summarized in Figure 1 below, based on their designed data
set of 98 empirical studies with more than 1,800 observations on multiplier effects and control for regime
dependence of the multipliers.
A few salient features of Figure 1 are worth noting. First, the means of reported multipliers from
investments and public spending impulses are approximately twice as high as those from tax cuts and
transfers. Among the public spending categories, multipliers related to public investment display the highest
value. Second, the minimum value for all fiscal instruments is negative, meaning that the range of
estimation does not exclude a fiscal stimulus resulting in an undesirable adverse impact on output.
Figure 1 Range of fiscal multipliers depending on fiscal instrument used
Source: Authors’ elaboration based on Gechert and Rannenberg (2018)
Data, modeling, and methodological choices can affect the estimates of fiscal multipliers obtained from
Structural VAR (SVAR) models. Both spending and tax cut multipliers are sensitive to specific choices
regarding the composition of government spending and revenues. The specific definition of government
revenues or spending, as well as specific ways of treating the data prior to estimation, can be very influential
for both spending and tax cut multipliers. Capek and Crespo Cuaresma (2020) show how the spending
multiplier is sensitive to different modeling and methodological choices, such as different ways to deflate
nominal variables and the use of different time horizons. The identification strategy used to isolate structural
shocks also matters in some cases. 2 Table 1 summarizes the estimations of public spending and investment
multipliers and methodologies in several country-specific studies, including the identification strategy. It
is important to note that estimates are based on averages for a particular country over a particular period of
time. This makes it difficult to compare even the studies that calculate the multiplier for the same country.
2
In cases where a causal ordering based on Cholesky decompositions is used to identify fiscal shocks in VAR models that contain
inflation and the interest rate, the value of the spending multiplier tends to be larger (by 0.113 and 0.320, respectively). This
qualitative result holds also for the tax cut multiplier in the case of Cholesky‐based identification, which is also strongly affected
by the particular values of the elasticities used when implementing the Blanchard and Perotti (2002) approach.
4
Table 1: Survey of Public Investment and Spending Multipliers
Country & World Bank Author(s) Study Methodology, Multiplier range Type
Region Income Period including
Group (2020) identification
strategy
Peru Upper Middle Central 1992-2012 VAR (output 0.24; 0.92 (short- Current; Capital
Income Reserve elasticities of term) spending
Bank of expenditure to filter 0.49; 1.42(medium-
Peru (2012) out automatic term)
stabilizers)
Peru Upper Middle Rossini et 2005-2011 SVAR (a 0.78; 1.36 (short- Current; Capital
Income al. (2012) multivariate, linear term) 0.52; 2.63 spending
representation of a (medium-term)
vector of observables
on its own lags)
Australia High Income Hunt et al. DSGE model 1.22 Public Investment
(2009) (simulated impacts
on the output) 1.12 Public Consumption
Czech High Income Ambrisko 1996 - 2011 DSGE model 0.5 (in the first year) Government
Republic et al. (simulated impacts investment
(2015) on the output) 0.6 (in the first year)
Government
Consumption
Germany High Income Veld European 0.6 Public Investment

(2016) Commission’s macro
Quest model
simulations
(simulations under
different scenarios)
Italy High Income Acconcia et 1990 - 1999 OLS with IV to 1.5 Public spending
al. (2014) address endogeneity
Japan High Income Bruckner 1990 - 2010 Panel VAR at 0.26 Government Spending
and prefecture level
Tuladhar
(2014)
Japan High Income Kanazawa 1980 - 2014 Local projection – IV 1.64 (after one year) Public Investment
(2018) method (using the
extracted measure of
the excess return
shocks as an
instrument variable)
Japan High Income Kuttner and 1990 - 1999 VAR (output 2 (cumulative four- Public Spending
Posen elasticities of year multiplier)
(2002) expenditure to filter
out automatic
stabilizers)
5
strategy
Japan High Income Miyamoto 1980 – 1995 Local projection 0.6 Government Spending
et al. method (estimates
(2017) 1996 – 2014 impulse response 1.5
(Zero lower functions on shocks
bound) as well as lags of
variables usually
entering a vector
autoregression)
Korea, Rep High Income Eskesen DSGE (simulated 0.8 Government

and Lueth impacts on the Investment and
(2009) output) Consumption
Netherlands High Income Veld European 0.5 Public Investment

(2016) Commission’s macro
Quest model
simulations
Gulf High Income Espinoza 1975-2009 VAR linking real 0.3 - 0.7 Current Expenditure
Cooperation and GDP, real
Council Senhadji government 0.6 - 1.1 Capital Spending
Countries (2011) expenditure and non-
oil real GDP. The
VAR estimated in
growth rates using
three lags
Spain High Income Pereira and 1970-1989 VAR (this approach 0.65 (after two years) Public capital
de Frutos does not impose a accumulation
(1999) priori restrictions on
the dynamic
relations among the
different variables)
United States High Income Coenen et DSGE (simulated 1 Government Spending

al. (2012) impacts on the
output)
United States High Income Erickson et 2001-2012 OLS with IV to 1.5 Federal Government
al. (2015) address endogeneity Spending
United States High Income Ramey & 1889-2015 Local projection 0.66 (after two years) Government Spending
Zubairy method (based on
(2018) sequential 0.71 (after four years)
regressions of the
endogenous variable
shifted several steps
ahead)
United States High Income Zandi Moody’s 1.59 (after one year) Government Spending
(2008) Economy.com macro
model
6
strategy
102 Kraay 1970-2010 IV to address 0.4 Spending

Developing (2014) endogeneity (the lags
Countries between
commitments and
eventual
disbursements on
loans by official
creditors to
developing country
governments)
11 European High Income Deleidi et 1970-2016 Local Projections 0.96 Public Investment
Countries al. (2020) approach on a panel
dataset and
considering different
model specifications
17 OECD High Income Abiad et al. 1985-2013 Local projections 1.4 (medium-term) Public Investment
economies (2015) method (estimates
impulse response
functions by directly
projecting a variable
of interest on shocks
as well as lags of
variables usually
entering a vector
autoregression)
Source: Compiled by authors
As shown by the table, fiscal multiplier estimates (even using the same broad methodology, country, and
time period) are heterogeneous. Some reasons for the differences across estimates are due to the role of
institutional settings or the asymmetry of fiscal multipliers in different business cycle phases. Data choices
and identification strategies are also found to have important effects on the precision of multiplier estimates.
Overall estimates for public spending and investment multipliers are modest and generally less than one.
However, what is most striking about the findings is that public investment multipliers grow and have more
lasting effects over time. Studies estimating the impact for the long run or over a multi-year horizon find
larger multipliers than the studies measuring the impact on the same year or after one year. As illustrated
by Leeper et al. (2010) implementation delays can produce small or even negative labor and output
responses in the short run.
In sum, the key lessons underscore that the spending multiplier is highly sensitive to different modeling and
methodological choices, as well as even more innocuous choices of time period considered in the analysis.
Overall, one of the strongest findings is that investment and spending are more effective than tax cuts and
transfer payments. In the next section, we will consider whether such a finding will be robust to the different
specifications of the “state” of the economy and other institutional factors.
7
2.2 Multipliers across Macroeconomic Conditions
While empirical estimates of the size of fiscal multipliers vary widely, there is a somewhat broader
consensus that the effectiveness of fiscal policies depend crucially on macroeconomic conditions, such as
inter alia the interaction between fiscal and monetary policies, and financing mechanisms. It also depends
crucially on a broader set of factors such as the selection and timeliness of projects, and the underpinning
characteristics.
Macroeconomic “state dependent multipliers”
Some of the challenges of the “state” dependent estimation of multipliers comes from the fact that the
identified changes in government spending must be exogenous and big enough to be able to disentangle
their effects from other economic shocks. Informative estimates require that the states span over a sufficient
portion of the sample and that the exogenous changes in government spending spread across the states.
Because there is no scope for controlled, randomized trials on countries, all estimates of aggregate
government multipliers are necessarily relying on historical episodes. Unfortunately, the data do not allow
to build clean natural experiments and is often subject to simultaneous equations bias (Ramey and Zubairy,
2018).
Table 2 summarizes the macroeconomic conditions that contribute to the higher effectiveness of fiscal
stimulus. We will focus the discussion on those for which the economic literature provides stronger
evidence.
Table 2: Conditions affecting the effectiveness of fiscal stimulus
State variables Conditions for higher multipliers Reference

Exchange rate regime Fixed (as opposed to floating) exchange rate Ilzetzki et al. (2013)
Openness to trade Less open economy Ilzetzki et al., 2013; Gonzalez-Garcia,

Lemus, and Mrkaic (2013)
Public indebtedness Lower levels of public debt Batini et al. (2014); Corsetti et al., (2012);
Ilzetzki et al., (2013); Nickel and Tudyka,
(2014); Huidrom et al. (2019)
State of economy Recessions (as opposed to booms or Broda and Parker (2014); Bachmann and
average periods) Sims, 2012; Owyang et al. (2013); Ramey
and Zubairy (2018)
Stage of development Inconclusive evidence Sheremirov and Spirovska (2019); Arizala et
al. (2017); Kraay, 2010; Ilzetzki et al.
(2013). Izquierdo et al. (2019). Egger et al.
(2019)
Coordination with monetary policy Accommodative monetary policy, Cogan et al. (2010); Coenen, Straub, and
particularly under zero lower bounds Trabandt (2013); Eggertsson and Woodford
(2003); Eggertsson (2010), Christiano et al.,
(2011); Woodford, (2011); Fernandez‐
Villaverde et al. (2015); Leeper et al. (2017)
Source: Authors’ elaboration
As Figure 2 illustrates, for most fiscal impulses, the magnitude of the multiplier substantially increases as
the economy moves into a recession, the only exception being the tax multipliers. For all impulses other
than tax changes, the point estimate of the multiplier strongly exceeds one in recessions, and for all
expenditure types other than government consumption significantly so at the 5 percent level. The spending
multiplier is significantly higher during downturns than during average periods or booms, both in statistical
8
and economic terms. The multiplier ranges from 0.8 to 0.9 across the various specifications, while the one
in the boom is estimated to be negative in most specifications and is never significantly positive in economic
or statistical terms. In contrast to the government expenditure multiplier, the effect of tax changes on GDP
seems to be roughly the same in booms, recessions, and average economic regimes.
Figure 2 Range of fiscal multipliers depending on the state of the economy
The range of variation during a downturn is much larger across the different fiscal instruments used (see
Figure 3). Transfers have the highest regime multiplier, followed by military spending, investment,
consumption, and general spending. Part of the explanation might be that the share of liquidity-constrained
or credit-constrained consumers rises strongly during downturns and the transfer increases occurring during
downturns tend to be especially well targeted. The high marginal propensity to spend out of government
transfers increases during downturns as suggested by the findings of Broda and Parker (2014), who
investigate the effect of the 2008 stimulus payments of the US government on household consumption.
Furthermore, transfer increases might also lift consumer sentiment, thus increasing the propensity to
consume out of any given increase in disposable income (Bachmann and Sims, 2012).
Figure 3 Range of fiscal multipliers depending on the fiscal instruments during a downturn
9
Evidence for higher spending multipliers during recessions or times of high unemployment is fragile, and
most robust results suggest multipliers of one or below during these periods. Most of the state-dependent
analyses are mainly conducted using nonlinear VARs, with shocks often identified by a Blanchard‐Perotti
(2002) type of recursive strategy without taking external information on tax elasticities into account.
Differently, Owyang et al. (2013) and Ramey and Zubairy (2018) employ local projections à la Jordá (2005)
and exploit fiscal spending news shocks identified with a narrative approach to compute asymmetric
multipliers in expansions and in recessions. Using the narrative approach, they find no evidence in favor of
larger multipliers in bad times for the United States. This evidence, however, is found for Canada. Caggiano
et al.’s (2015) result on the acyclicality of fiscal spending multipliers is similar to the one in Ramey and
Zubairy (2018). However, when extreme events (in particular, the Great Recession) are considered, the
smooth‐transition VAR used by Caggiano et al. (2015) points to a large fiscal spending multiplier (about
2.5) which is much higher than the one normally associated with sustained booms. One of the key takeaways
is that not all recessions are the same, and during deeper ones, higher returns may result from increasing
public investment or consumption.
It is important to note that, while most of the literature has focused on the effects of positive fiscal spending
shocks in booms and busts, recent evidence points to significant differences between the effects of positive
and negative changes in fiscal spending. Barnichon and Matthes (2017) show that the contractionary
multiplier – the multiplier associated with a negative shock to government spending--is above 1, and it is
even larger in times of economic slack. In contrast, the expansionary multiplier --the multiplier associated
with a positive shock – is substantially below 1 regardless of the state of the business cycle.
The evidence for higher government spending multipliers during periods in which monetary policy is very
accommodative, such as zero lower bound periods, is somewhat stronger. Given the inability of most central
banks to implement conventional policy easing (a costly inability, as empirically proven by, for example,
Caggiano et al. 2017; Kulish et al. 2017; Liu et al. 2017), policy makers have experimented with
expansionary policies such as unconventional monetary policy interventions or fiscal plans to stimulate
their economies out of recession.
Let us consider Christiano et al. (2011) who study the effects of a binding zero lower bound on the fiscal
spending multiplier in a medium‐scale New Keynesian framework (for other references, see Eggertsson
and Woodford, 2003; Eggertsson, 2010; Christiano et al., 2011; Woodford, 2011, Fernandez‐Villaverde et
al., 2015; and Leeper et al., 2017). They show that the multiplier can be much larger than one. The reason
is the following. An increase in spending leads to an increase in output, marginal cost of production, and
expected inflation. The increase in expected inflation, given the zero level of the policy rate, drives the real
ex‐ante interest rate down, which then boosts the multiplier. The value of the multiplier depends on many
factors. Interestingly, the larger the output cost an economy experiences due to the presence of the zero
lower bound (which limits the central bank's ability to tackle recessionary shocks in the first place), the
larger the value of the multiplier.
While fiscal policy has often been studied in isolation, it is important to stress that its interaction with
monetary policy is crucial for the determination of the size of the fiscal multipliers. Bianchi and Melosi
(2017) model the interaction between monetary and fiscal policy with a micro‐founded regime‐switching
DSGE framework featuring different possible monetary–fiscal policy mixes. Bianchi and Melosi (2019)
show that a coordinated commitment to inflate away part of the debt can lead to welfare improvements and
lower uncertainty because it separates the issue of long‐run debt sustainability from the need for a short‐
run fiscal stimulus.
Other relevant papers on the policy mix are the ones by Eusepi and Preston (2018a, 2018b). Using a DSGE
model the authors find that stability (defined as the set of policies that ensures agents correctly learn the
10
long‐run objectives of the policy) is threatened when debt is high and of moderate maturity (between 2 and
7 years), which is indeed the maturity for most European countries. 3 This is a crucial policy message
because most European countries (with the notable exception of the United Kingdom) feature high debt
levels and average debt maturities falling within this range. Eusepi and Preston (2018b) show that, even
under an aggressive monetary policy, debt levels and maturities comparable to the European ones would
have prevented the US economy from the Great Moderation. Turning to the VAR empirical side, Rossi and
Zubairy (2011) and Canova and Pappa (2011) show that fiscal multipliers tend to be larger when positive
spending shocks are accompanied by a decline in the real interest rate.
A number of studies have looked at the size of multipliers under different macroeconomic conditions. After
analyzing a quarterly data set on government expenditures for 44 countries (20 high-income and 24
developing) from 1960 to 2007, Ilzetzki et al. (2013) conclude that the fiscal multiplier is relatively large
in economies operating under a predetermined exchange rate, but it is zero in economies operating under
flexible exchange rates. They also find that fiscal multipliers are smaller in open economies than in closed
economies and are zero in high-debt countries. The evidence, despite being intuitive, as a fixed exchange
rate and the limited openness to trade may reduce potential crowding out effects, is however based on
comparison between countries with different regimes rather than implying evidence ceteris paribus on the
shift from one regime to another for the same country.
Unfortunately, there is a substantially smaller number of studies that have focused on the determinants of
the size of the public investment multipliers, particularly when it comes to developing countries, for which
lack of long time series poses formidable challenges. Accordingly, crucial questions such as whether
multipliers in lower-income countries should be expected to be higher or lower than in high-income ones
remain still unaddressed (Batini et al., 2014). Some studies suggest that multipliers are lower. These include
studies finding that multipliers in lower-income countries are half the size of those in advanced economies
(Sheremirov and Spirovska, 2019); are smaller in Sub-Saharan Africa than in advanced and emerging
market economies (Arizala et al., 2017); or are effectively zero (Kraay, 2010; Ilzetzki et al., 2013). Other
results are more optimistic, suggesting that public investment in developing countries would carry high
returns. Namely, the theoretical notion according to which public investment multipliers should be higher
or lower according to the size of the initial stock of public capital seem to be confirmed by Izquierdo et al.
(2019). Finally, other studies suggest that one-time cash transfers in Kenya have been shown to have large
impacts on consumption for recipients and large positive spillovers for non-recipient households and firms
(Egger et al., 2019).
The quality, quantity, and accessibility of economic infrastructure in low-income developing countries lags
considerably behind those in advanced and emerging market economies (Gurara et al., 2017). At the same
time, public investment overall accounts for a larger share of the economy: 7.5 percent of GDP in the
median low income countries, compared to 4.8 percent in emerging markets and 3.2 percent in advanced
economies (Tandberg and Allen, 2020). Ganelli and Tervala (2016), modeling a public infrastructure
investment shock with a temporary demand effect and a supply-side effect, the latter due to the fact that the
productive capacity of firms increases with a higher infrastructure stock, find that the welfare gains of
public infrastructure investment may be substantial. Notably, a dollar spent by the government for
investment raises domestic welfare by the equivalent of 0.8 dollar of additional private consumption.
3
Typically, rational expectation‐DSGE models of inflation assign a dominant role to monetary policy and confine fiscal policy to
the background. In the language of Leeper (1991), fiscal policy is ‘passive’, that is, it just determines the value of debt.
11
Other institutional factors affecting fiscal multipliers
There has been great interest in better understanding the effect of lack of efficiency on the size of the public
investment multiplier, due to cost overruns, implementation delays (making the costs of the project higher
or ‘wasteful’), poor project selection or allocation across sectors or simply due to the presence of corruption.
A recent paper by Gurara et al. (2020) looking at the association between cost inflation and public
investment in a large sample of road construction projects in developing countries shows a non-linear U-
shaped relationship between public investment and project costs. Unit costs increase once public investment
is close to 10 percent of GDP. This threshold is lower (about 7 percent of GDP) in countries with low
investment efficiency and, in general, the effect of investment scaling up on costs is especially strong during
investment booms.
Another strand of the literature identifies among the reasons that may explain the weak association between
public investment accelerations and output growth the limited absorptive capacity (Horvat, 1958;
Rosenstein-Rodan,1961). A first way to conceptualize absorptive capacity is in terms of declining marginal
returns to public investment. In that sense, one could think that the output gains of additional public
investment diminish as long as public capital is accumulated, so that the expected rate of return is declining
with capital investment. A slightly different way to think about absorptive capacity is to relate supply
bottlenecks with public investment dynamics. It has been argued that once the pace of investment (rather
than the level) is above a certain threshold, countries do not have the capacity – in terms of skills,
institutions, and management – to reap the benefit of additional public investment.
Last but not least, for infrastructure spending to be an effective economic stimulus requires the money to
be deployed and create jobs while the economy is struggling. Large infrastructure investments have been
often slow-moving projects requiring years to plan and execute. In a review of the 2009 stimulus in the US,
Mallett (2020) notes that infrastructure projects were moving at a much slower pace than other types of
stimulus leading to a lag in the economic impact. This last strand of literature emphasizes the need for
“shovel ready” projects for guaranteeing an effective economic stimulus.
Large new infrastructure projects require design, engineering, permitting, and environmental reviews
before construction can begin. Few projects are ready to break ground and start the labor-intensive
construction phase quickly. Those that are ready can be delayed by federal involvement. In the US, “shovel
ready” projects were delayed by a further year following the receipt of federal grants due to the need to
pass through federal environmental and historical regulatory reviews, which forced layoffs as the contract
was rebid and construction waited for federal approval (Michel, 2021).
Most jobs, especially infrastructure construction jobs, require skills specialization and training to be
effective, safe, and efficient. Training unemployed workers without prior construction experience to expand
payrolls temporarily is often not worth the time investment and high cost. There is also the risk that those
firms accessing the stimulus funding are not those suffering more from the recession (Jones and Rothschild,
2020). Temporary stimulus programs seem more successful at shifting resources within industries than at
expanding the industry itself.
Within this context increased maintenance spending may be a promising option for stimulus spending, as
it may both create jobs (with corresponding income effects) and maintain the capital stock. There is likely
to be substantial room for this across many lower-income countries as maintenance spending tends to be
chronically under-budgeted. Maintenance spending is also one of the few areas of government consumption
spending where increases can easily be made temporary without risking raising the long-term level of
government spending (see the literature starting from Schwartz et al., 2007).
12
2.3 Multipliers across Infrastructure Sectors
The literature on fiscal multipliers has mostly focused on the overall effects of public investments and
expenditures on growth. However, infrastructure spending is distinct from general public investment, and
each infrastructure sector is unique in the way that it interacts with other sectors and in the contribution that
it provides to the economy. Hence, the composition of infrastructure investment and expenditure also
determines the size of the impact. So far, the literature estimating the effects of infrastructure components
such as investments in transportation, energy, and ICT is not only much more limited, but also uses much
less sophisticated tools than the ones we examined in the previous sections.
Within this last section, the concept of “multiplier” is different and simply captures the rate of return of
infrastructure investment in terms of income, GDP or simply reports a crude estimation of the direct,
indirect, and induced job creation of a given investment/spending in infrastructure. Indeed, this section
reviews both the evidence related to income as well as job multipliers, as particularly during crises
protecting or creating employment is of crucial relevance. Job multipliers capture the ratio of indirect and
induced employment to direct employment created in the creation of an infrastructure asset.
Table 3: Infrastructure Multipliers by Type
Country & Author(s) Infrastructure Type Multiplier Type Multiplier (direct and indirect
Region effects)
Germany Katz et al. (2010) Broadband Employment 1.45, 1.92*
Switzerland Katz et al. (2008) Broadband Employment 1.38
United Liebenau et al. Broadband Employment 2.76*
Kingdom (2009)
United States Atkinson et al. Broadband Employment 3.60*
(2009)
United States Crandall et al. Broadband Employment 2.17*
(2003)
United States Katz and Suter Broadband Employment 1.83, 3.42*
(2009)
United States Bivens (2003) Communications Employment 2.52
Malaysia Bekhet (2011) Electricity & Gas Employment 3.5*
Water works & supply 2.4*
Building & 1.7*
Construction
United Kelly et al. (i) Electricity Income 3.56, 5.56*
Kingdom (2016) production &
distribution 1.54, 2.40*
(ii) Land transport 2.00, 3.10*
(iii) Railway 1.54, 2.41*
(iv)
Telecommunications
United States Pereira (2000) Transport (Highway) Income 1.97 (long-run)
United States Chi and Baek Transport Income 0.55
(2016)
United States Leduc and Transport Income 2.7 (Short-term)
Wilson (2012) 6.2 (Long-term)
United States Perotti (2004) Transport Income 1.47 (Short-term)
0.37 (Long-term)
Egypt, Arab Estache et al. (i) Electricity Employment 1.06, 1.49*
Rep. (2012) (ii) Construction & 1.36, 1.63*
Building
(iii) Transport & 1.34, 1.82*
Communications
13
Country & Author(s) Infrastructure Type Multiplier Type Multiplier (direct and
Region indirect effects)
United States Comings et al. (i)Photovoltaic Employment 5 - 9 jobs
(Montana) (2014) projects 1.5 jobs
(ii)Wind & energy
efficiency
United States Crandall et al. Broadband Employment 293,000 jobs
(2007)
World IEA (2020a) Investment (for $1 Employment
million): 10 - 15 jobs
(i) Building retrofit,
efficient buildings, PV 5 - 8 jobs
(ii) Grids
(iii) Urban transport 7 - 12 jobs
and high-speed rail
(iv) Gas-fired plants 4.5 jobs
World IEA (2020a) Capital spending (for Employment

$1 million):
(i) Solar PV 3 constr & 6 manufacturing
jobs
(ii) Wind power
1 constr & 1.5 manufacturing
(iii) Upgrades and jobs
construction at
hydropower
3 jobs
(iv) Nuclear lifetime
extensions
2-3 jobs
(v) Biofuels and
recycling 11 – 12 jobs (advanced
economies), 29 - 46 jobs (the
(iv) New vehicles, rest of world)
appliances and
batteries 6 – 9 jobs (advanced
economies),
9 – 15 jobs (the rest of the
world)
*includes induced effects in addition to direct and indirect effects
Source: Compiled by authors
Table 3 presents the income and employment multiplier results for studies focusing on different countries
for the various sub-components of infrastructure investments. Despite the broad variation in estimates
across countries, and the fact that a small number of studies refers to developing countries, we can draw a
few general insights. Low employment multipliers are typically associated with sectors with high wages
and with relatively complex, capital intensive projects whereas sectors with low wage employees and low
material costs usually generate high employment multipliers (International Energy Agency, IEA, 2020a).
Transportation spending has often played a prominent role in government efforts to stimulate the economy
during downturns. For instance, of the estimated US$ 825 billion over ten years in the American Recovery
14
and Reinvestment Act of 2009, about two-thirds came from increased federal government spending, with
the Department of Transportation receiving US$ 48 billion. 4
Chi and Baek (2016) document the bidirectional relationship between transport infrastructure and GDP for
the period 1960-2012. Their findings suggest that expanding transport infrastructure improves aggregate
economic output, and enhanced economic output increases public investment in transport infrastructure in
the period. However, the magnitude of the impact of transport infrastructure (0.55) on GDP is smaller than
that of non-transport public infrastructure (1.02), implying that non-transport infrastructure investment is a
more effective long-term fiscal stimulus than expanding transport infrastructure.
Pereira (2000), based on the US highway spending data for the period between 1956 and 1997, finds a long
term multiplier of 1.97 for investment in transportation infrastructure (the lowest across different types of
infrastructure investments) well below 4.5, the long run multiplier for total public investment. This finding
implies a 3.4 percent rate of return on public investment in transportation infrastructure. Similarly, Leduc
and Wilson (2012) estimate 2.7 and 6.2 for the short- and long-run multiplier for the period 1993-2010,
while Perotti (2004) finds 1.47 in the short-run and 0.37 in the long-run for the period 1960-2001.
Turning to the energy sector, the report of Blyth et al. (2014) surveys the literature on the employment
effects of selected policies and note that renewable energy has a higher jobs multiplier in the short run,
while it requires less labor for operation and maintenance in the long-run. Comings et al. (2014) show that
for each megawatt of renewable energy capacity added, photovoltaic projects would add 5 to 9 jobs
depending on the size of the project. The contribution of wind projects, on the other hand, is around 1.5
jobs for each megawatt of capacity added.
Broadband infrastructure has been identified as an important area of public investment during an economic
downturn in several studies. Due to the scope for user-funded private finance in the telecommunications
sector, broadband investment tends to make much smaller demands on public expenditure. Spending
initiatives on next-generation telecommunications networks at a time when labor market conditions are
particularly weak can help preserve jobs and head off a potential burden on social safety nets. Bringing
forward longer-term aggregate spillover effects of broadband can improve the productivity of the entire
economy and is consistent with enhancing long-run growth and development. Public support also "crowds
in" private investment when access to private financing is decreasing and more expensive.
Investing in broadband and next-generation networks, as a counter-cyclical tool, creates jobs and provides
the foundation for economic recovery and long-term sustainable growth (Qiang, 2010). IT infrastructure
projects create more jobs than traditional infrastructure investments, in part because of the network
multiplier, they also create better jobs in terms of higher skill and higher pay. An additional $10 billion
broadband investment would create about 64,000 direct jobs in telecommunications and 116,000 jobs
(multiplier of 3.60) in related industries (Atkinson, 2009). Crandall et al. (2003) estimate the employment
impact of a $63.6 billion investment in broadband deployment aimed at increasing household adoption from
60 percent to 95 percent. They find 140,000 jobs (a multiplier of 2.17) are created per year over ten years.
Jobs in the communications sector in the US economy have an employment multiplier of 2.52 (Bivens,
2003). This indicates that the 50,000 service jobs created by a $10 billion broadband stimulus package
create an additional 125,500 jobs. The multiplier for manufacturing jobs is 2.91. Hence, the 13,800
communications/computer equipment manufacturing jobs created to support an additional 40,000 indirect
and induced jobs. Crandall et al. (2007) find that for every 1 percentage point increase achieved in
4
Similarly, Japan initiated a series of stimulus packages with a significant emphasis on spending for public work (among which
spending on roads figured prominently) during the stock market collapse in 1989 (Leduc & Wilson, 2014).
15
broadband penetration, employment rises from 0.2 to 0.3 percent, or about 293,000 jobs for an economy at
less than full employment.
Strand & Toman (2010) discuss the short-run and long-run effects of green stimulus efforts. They find that
most green stimulus programs that have large short-run employment and environmental effects are likely
to have less significant positive effects for long-run growth, and vice versa. This is because programs that
create more (less) job opportunities tend to employ lower- (higher-) skilled workers, and therefore yield
smaller (larger) long-term growth effects. For example, most jobs in the wind or solar PV sector are high-
skilled; investment in these sectors can contribute substantially to future technical development and growth.
Most jobs in solar-thermal and biomass production are by contrast lower-skilled, with less scope for
technological enhancement and learning effects for the individuals employed. One-fifth of employees in
clean-energy production and energy-efficient occupations have college degrees (Muro et al., 2019).
By the same token, capital-intensive investments such as digitalization and 5G are more likely to show
economic benefits over the longer term and therefore much less likely to create strong short-term stimulus
effects. Strand and Toman’s (2010) analysis implies a tradeoff in many cases between skill levels and labor
intensities, reinforcing the point that different instruments are needed for addressing different problems. A
recent paper by Hepburn et al. (2020) based on expert surveys also shows that there are limited policy
options that generate both large economic multipliers and climate impact.
Despite the recognition of limited availability of triple win-win-win opportunities, countries that invested
the most in green stimulus after the Great Recession such as the United States, Germany, and the Republic
of Korea boosted their economies and created jobs. The green stimulus supported 900,000 job-years in
clean energy fields from 2009 to 2015 in the United States, and 156,000 new green jobs from 2009 to 2011
in Korea. Korea included green measures in almost 80 percent of the stimulus in the fourth quarter of 2008.
Almost one-half of the stimulus targeted energy-efficient projects and low carbon vehicles (UNEP, 2009;
Jaeger, 2020). The 2008 Green New Deal Stimulus in Korea estimated to generate 960,00 jobs in energy-
efficient and low-carbon energy sectors such as energy conservation in villages, fuel-efficient vehicles,
expanding mass transit, and railroads (Barbier, 2010; Robins et al., 2009).
Green construction projects, such as insulation retrofits or clean energy infrastructure, can similarly deliver
higher multipliers. These large construction projects are less amenable to offshoring via imports (Jacobs,
2012). Clean energy infrastructure is also labor intensive in the early stages – Garrett-Peltier (2017)
suggests that every US$ 1 million spent generates 7.49 full-time jobs in renewables infrastructure, 7.72 in
energy efficiency.
In the European Union, each US$ 1 in green investment boosted GDP by up to $1.50 across the region
(Cambridge Econometrics, 2011). In China, rapid investment in railways, grid networks, and other green
initiatives boosted the GDP abound 4.2 percent above the baseline in 2009 and 3.6 percent above the
baseline in 2010 (Cambridge Econometrics, 2011). There were around 400,000 jobs in low carbon
businesses and their supply chains in the UK in 2017. The offshore wind sector in which 7,200 people were
employed in 2019 is such an example. Energy efficiency is identified as a job-intensive form of clean energy
investment for the post-crisis stimulus (IEA, 2020b). Capital-intensive clean energy infrastructure in
technologies represents a prospect for long-term employment (KPMG, 2020). These public investments
offer high returns in the long run (Henbest, 2020) and could serve to kick start green innovation ecosystems
(Acemoglu et al., 2012). At the same time, adoption of green technologies could create higher spillovers
by driving an efficient, innovative, and productive economy (Aghion et al., 2014).
In addition, compared to traditional stimulus, green stimulus, in many cases, has been singled out as more
effective in creating jobs. Spending on public transit in the United States led to 70 percent more job-hours
than equivalent spending on highways. Job intensity is estimated at 8 jobs per US$ 1 million invested in
16
green electricity, 2-13 jobs in efficient new buildings such as schools and hospitals, and 6-14 jobs in green
water and sanitation through efficient agricultural pumps and recycling in advanced economies (IEA,
2020a; Popp et al., 2020). Each US$ 1 million of green ARRA created 15 new jobs in the post ARRA
period of 2013-2017 (Popp et al., 2020).
2.4 Summary of Evidence on the Impact of Fiscal Multipliers

The key lessons learned from the literature review conducted so far indicate that fiscal multipliers estimates
are highly sensitive to different modeling and methodological choices as well as even more innocuous
choices such as the time period considered in the analysis.
Whereas in general public investments are characterized by the highest multiplier, during downturns or
times of unemployment, transfers may represent a more powerful source of fiscal stimulus. However, not
all crises are the same, and for some of the deeper ones, such as the Great Depression, spending and
investment multipliers are still greater than one. Evidence on other macroeconomic “states” is not robust,
with the most notable exception of a coordinated fiscal and monetary policy, especially under interest rates
close to zero. Other institutional factors play a crucial role in determining the size of the public investment
multiplier, in particular the country’s absorptive capacity, and the selection of high-quality shovel ready
projects.
However, relatively little is known about the size of public investment multipliers for developing countries
and emerging economies (mainly due to data constraints) and the existing evidence is mixed. Furthermore,
there is scant knowledge on the specific impact of investments in infrastructure. The limited evidence
available is less rigorous and focuses on estimates of the rate of returns of investment in transport, energy
and digital. Although results vary extensively, on average the strongest evidence for larger multipliers is
associated with energy efficiency retrofits and road maintenance in the near term, and broadband
infrastructure in the longer term.
Green investment in infrastructure seems to have higher multipliers and may have the potential to create
jobs in the short-run (since it is labor-intensive in the early stage) and higher investment returns in the long-
run (align with energy security and climate goals). Countries that invested the most in green stimulus after
the Great Recession boosted their economies and created jobs. However, the trade-off between short- and
long-term impacts as well as between skill-levels and labor-intensities need to be carefully considered.
3. Fiscal Stimulus Programs during Crises: Historical Experience
As the COVID-19 pandemic brings the world economy into a downturn, governments around the world are
looking back at the lessons learned from the global experiences from the historical crisis to reduce the
severity of the current one. Many countries have used fiscal stimulus programs to attempt to assist the
economic state of their countries during crises. However, the composition of fiscal stimulus packages
differs across regions and countries, depending on the magnitude and type of impacts of the economic
crises, the degree of integration, and other related factors. In this section, we discuss the historical
experience.
17
3.1 The Great Depression
The Great Depression was triggered in the United States by the Wall Street crash in October 1929 and
became worldwide. It resulted in a massive loss of income, record unemployment rates and output loss,
especially in industrialized nations. In the United States unemployment hit almost 25 percent at the peak
of the crisis in 1933.
In the United States during the Great Depression, a large fiscal stimulus package was introduced to increase
funds to public works. Noticeably, the Federal Reserve slashed interest rates down to zero in an attempt to
manage the negative real effects of the financial crisis. The New Deal used historic spending to fund entirely
new categories of forward-looking projects: delivering clean water, electricity, and telephone service to
people for the first time; demonstrating mega-project capabilities such as New York City’s Lincoln Tunnel;
and reinvigorating the civic commons through projects such as San Antonio’s River Walk and Charleston.
Programs such as the Works Progress Administration 5 and the Tennessee Valley Authority were key
elements of the government’s economic stimulus. The Works Progress Administration granted state and
local government funds to provide work relief and direct relief and to build and maintain infrastructure.
The Tennessee Valley Authority provided jobs and electricity to the rural Tennessee River Valley that spans
seven states in the South as a part of Depression-era New Deal programs. In addition, Congress passed a
series of infrastructure bills to build major bridges, roads, and other improvements such as Hoover Dam in
Nevada and the Golden Gate Bridge in California. The bills not only met the needs of modernization but
also supplied jobs during the crisis. About 85 percent of the grants were used to hire the unemployed on
work relief jobs. These jobs include maintenance activities such as building sidewalks, local roads, schools,
and improvements in the local infrastructure (Fishback et al., 2004).
Using data on New Deal Grants to each US county from 1933 to 1939, Fishback et al. (2005) estimate how
relief and public works spending and payments to farmers through the Agricultural Adjustment
Administration influenced retail consumption. They find that an additional dollar of public works and relief
spending was associated with 44 cents increase in 1939 retail sales. This implies a weak effect of fiscal
policy consistent with results from Romer (1992).
Similarly, Fishback and Kachanovskaya (2011) examine the impact of federal stimulus programs and find
that state per capita personal income multiplier with respect to per capita federal grants is around 1.1. In
another study, Fishback and Kachanovskaya (2015) estimate that an added dollar of federal spending in the
state increased state per capita income by between 40 and 96 cents by using an annual panel data set for the
period 1930-1940.
Federal grants had stronger effects on consumption than on personal income, but they had no positive effect
on various measures of private employment. The multiplier for wages, salaries, and retail sales is
substantially less than one indicating “crowding-out”. The multiplier for farm payments to take land out of
production was -0.57 (Fishback and Kachanovskaya, 2011). This implies that the program actually reduced
personal income. These results may help to explain why measures of income have recovered more rapidly
than measures of employment in the 1930s. Based on these findings, the New Deal spending might have
raised the productivity of local producers if it was devoted to building infrastructure that cut transport costs
to other areas (Fishback and Kachanovskaya, 2010).
5
Renamed as Works Projects Administration in 1939.
18
3.2 The Asian Crisis of 1997
The Asian Crisis originated in Thailand in 1997 and quickly spread to the rest of East Asia and its trading
partners. It was a currency crisis. In July 1997, the Thai government had to abandon its fixed exchange rate
against the US dollar that it had maintained for so long, citing a lack of foreign currency resources. Among
others, Indonesia, Korea, and Thailand were affected the most. Relatively less impacted were countries,
including Brunei, China, Singapore, Taiwan, China, and Vietnam, however, also suffered from a sharp
decline in demand in the region.
Infrastructure PPP investments and the number of projects in transport and energy sectors declined
substantially soon after the Asian Crisis in the East Asia and Pacific (Figure 4). Currency conversion risk
in infrastructure financing projects translated into reduced government willingness to provide explicit
guarantees for projects in the period following the crisis. The investments in the region were also affected
during the Global Recession but the impact was relatively smaller.
Figure 4: Greenfield Transport and Energy Investment (by US$ and number) in East Asia Pacific
40000
125
100
30000
Real Investment (USDm)
Number of Projects
75
20000
50
10000
25
0
1990 2000 2010 2020 1990 2000 2010 2020
Source: Authors’ calculation based on private investment in infrastructure database (https://ppi.worldbank.org/en/ppi). Vertical
lines represent 1997-98 Asian Crises and 2008-09 Great Recession. This figure shows the total number of greenfield projects in
transport and energy sectors for the period 1990-2019 in the East Asia and Pacific countries. There is a sharp decrease in the number
of projects and associated investment starting with the Asian crises in 1997, which continues till 2000. Countries included in the
analysis: Cambodia, China, Indonesia, Lao PDR, Malaysia, Mongolia, Myanmar, Papua New Guinea, Philippines, Solomon
Islands, Thailand, Timor-Leste, Tonga, Vanuatu, Vietnam.
The 1997 Asian financial crisis seriously hampered infrastructure investments. In the case of Indonesia,
public infrastructure investment fell dramatically after the crisis, to about 1 percent of GDP in 2000. Even
a decade after the crisis, total public infrastructure investment—public, state-owned enterprises and private
sector combined—stood at 3.4 percent of GDP, which is still significantly below pre-crisis levels of around
5 to 6 percent of GDP, leading to a ‘lost decade’ in infrastructure investments since then. More broadly, the
Indonesian government failed to invest sufficiently in its economy and the public investment rate became
one of the lowest among middle-income countries. Total investment, both public and private, declined from
27 percent of GDP in 1996 to less than 20 percent in 1999. There was even sharper decline in the public
development spending -- a proxy for public investment. It declined from 6.5 percent of GDP in 1996 to
around 4 percent in 2000 (World Bank, 2007). In countries such as Indonesia and Korea where public
austerity prevailed, public works programs were used in the attempt to provide targeted income support to
the poor. However, many flaws were discovered during the implementation of such projects. For example,
in Indonesia, nearly two-thirds of the poor did not participate in the projects (World Bank, 2000).
19
Some Asian countries adopted an economic package with a focus on infrastructure investments. For
instance, China implemented an ambitious infrastructure investment program worth approximately US$ 12
billion for the period 1998-2000 to relieve the binding constraint on growth, with a focus on roads and
highways, which in turn opened up the interior region to more commerce. Japan’s US$ 127 billion stimulus
package is yet another example that targeted spending on infrastructure projects mainly for science,
technology, and telecommunications (Richardson, 1998). In addition, Japan also announced a scheme of a
special yen loan facility of a maximum amounting to a total of up to 600 billion yen (approximately US$ 5
billion) to contribute to economic structural reforms in the wider East Asia region by promoting the
infrastructure developments. 6
There is macroeconomic evidence documenting the fast recovery in some of the countries in the region that
implemented fiscal stimulus packages, but more detailed evidence on the assessment of multipliers is
scarce. In the case of China, improvements in the highway system, port facilities, telecommunications, and
education helped the economy to get out of deflation in 2003 and increased the average growth in GDP.
This was followed by an increase in government revenue that allowed public debt to decline from about 30
percent of GDP in the 1990s to about 20 percent in 2007 (Jha, 2009). Despite the large and decisive fiscal
stimulus in the 1990s (7 percent of GDP per year on average), Japan continued to face an ongoing challenge
of promoting faster economic growth. Chari and Henry (2015) show that the divergence in recoveries does
not depend on the size of fiscal stimulus but also on its persistence. Unlike Europe, some East Asian
countries continued to implement stimulus in response to the Asian Financial Crisis of 1997 until growth
recovered. On the other hand, large and rapid fiscal consolidation in Europe exerted a strong, negative
impact on growth.
3.3 The Great Recession

The Great Recession (also referred to as the financial crisis of 2008-2009) started with the bankruptcy of a
US investment bank, Lehman Brothers, followed by an unprecedented dislocation of financial markets. It
severely hit the stability and confidence of financial systems. To ease the negative economic impacts of the
2008-2009 financial crisis, many countries implemented fiscal stimulus packages. As each country
responded differently to the 2008-2009 global crisis, the impacts of their fiscal stimuli are unique as well.
Countries such as the Russian Federation and the United Kingdom mostly focused on tax cuts, while
spending measures were the main focus in countries like Argentina, China, and India. Expansion of social
security benefits by increasing spending on public health and unemployment benefits (Canada, France,
Russia, the United Kingdom, and the United States), cash transfer programs (Brazil, Canada, Chile, France,
Italy, Japan, Mexico, and Korea), pensions (Argentina, Australia, Canada, and China) and extending
concessional loans to low-income citizens (Saudi Arabia) are some of the mostly preferred components of
stimulus packages (Jha, 2009). Infrastructure investment programs were parts of the stimulus programs that
were enacted in the wake of the 2008-09 financial crisis to bolster economic conditions, with the share
allocated to infrastructure varying substantially across countries (Figure 5).
6
Ministry of Foreign Affairs of Japan (2000). https://www.mofa.go.jp/policy/economy/asia/crisis0010.html (Accessed in
September 21, 2020). During the crisis, there had been pressure on Japan to stimulate its economy and increase its imports from
the region to contribute to economic recovery of other Asian economies. Sales to Japan account for 12 percent of Malaysia’s GDP,
and in the range 5 to 7 percent for Indonesia; Korea; Taiwan, Chian; and Thailand (The Economist, 1998).
20
Figure 5: Infrastructure spending as a % of total stimulus packages, 2009
Source: Authors’ calculation based on IILS and OECD (2009)
By contrast with the New Deal, the transportation bills during the great recession mostly focused on
building traditional highways and transit lines. Just as importantly, workforce development programming
was central to the New Deal, while the transportation bills take as a given that more spending creates more
employment opportunities.
The American Recovery and Reinvestment Act (ARRA) used a hybrid approach, differing from the fiscal
stimulus used during the Great Recession. Some infrastructure funding went into preexisting programs,
which did accelerate spending when recipients were prepared. But ARRA also launched the National
Broadband Plan and the innovative Broadband Technology Opportunities Program. Funding toward clean
energy programs used renewable generation, weatherization, and even new financing models to invest in
long-term sustainability. Those innovative programs now serve as models for the next wave of digital and
resilience efforts. However, the impact on output, jobs, and crowding out were modest, even though the
presence of a large range of multipliers may mask the heterogeneity of the hybrid approach used, combining
pre-existing programs with innovative ones. Recent rigorous micro-research, such as Fowlie et al. (2018)
and De Groote and Verboven (2019), however, points at low returns (or benefit-cost ratio) and serious
design flaws in some high-profile policies.
Total spending on infrastructure across state and federal sources remained relatively unchanged as states
cut their own-source funding (Michel, 2021). Cogan and Taylor (2010) found that ARRA grants have “not
increased [state and local government] purchases of goods and services. Instead, they reduced borrowing
and increased transfer payments” almost entirely offsetting the increased federal spending. Whalen and
Reichling (2015) reported a wide range of multipliers for infrastructure spending, ranging from 0.4 to 2.2,
indicating a disagreement among economists about the effects of new spending. This highlights the fact
that in federal states, stimulus efforts by federal governments can only be effective if there is coordination
with fiscal policy at the state level, otherwise offsetting measures may simply be taken, pointing at the need
to ensure the needed consistency and coordination both at the central and local levels.
The employment effects of the American Recovery and Reinvestment Act were relatively modest, the
transportation funding allowed state and local governments to maintain employment in the transportation
construction sector as well as in other sectors (Mallett, 2020). Dupor (2017) found that “the number of
workers on highway and bridge construction did not significantly increase.” Several surveyed firms turned
21
down private-sector non-ARRA-funded work, highlighting the fact that government spending was directly
competing with private activity. The same researchers found that “rehiring of laid-off workers was rare,”
with only 4.4 percent of their surveyed workers being rehired after a layoff. Almost half (47 percent) of the
measured ARRA-created jobs were filled from the ranks of the already employed at other competing firms
(Jones and Rothchild, 2020). Federal dollars also crowded out state and local project funding, by allowing
recipient governments to decrease own-source funding on infrastructure and reduce debt issuances or fund
other priorities.
The impact of the temporary value-added tax (VAT) cut has also been documented and found to be small
and not be long-lasting. A prediction of Barrell and Weale (2009) indicates that a 2.5 percent reduction in
VAT (from 17.5 percent to 15 percent) in the United Kingdom is likely to result in consumption being
augmented by less than 1 percent by the fourth quarter to 2009. This contributes less than 0.5 percent to
GDP compared to the case without the VAT increase. Moreover, after the temporary reduction is over,
both consumption and GDP are depressed as a result of the policy.
In addition to tax reductions, fiscal stimulus packages in many countries consisted of transfers to households
and expenditures on public works. Australia is such an example. As a part of stimulus, 21 billion household
payments were delivered between December 2008 and May 2009, and 40 percent of households who
received a payment spent it (Leight, 2012). This rate is high compared to the records in surveys assessing
the 2001 and 2008 tax rebates in the United States and indicates that people are more likely to spend
“bonuses” than “rebates”.
Giesecke and Schilling (2010) highlighted the importance of a package more targeted at employment
promotion to increase the effectiveness of the fiscal stimulus. New Zealand’s fiscal stimulus package, for
instance, largely comprised three policies: cuts to personal income taxes; cuts to business taxes; and
increased infrastructure spending (0.3 percent of GDP for 3 years; 2009-2011). However, it had a small
impact on employment – around 10,000 jobs- in the short-run, at a cost to long-run consumption (Giesecke
and Schilling, 2010).
In sum, governments all over the world eventually introduced budget measures intended to provide fiscal
stimulus to the economy, often including some component of infrastructure spending. However, the limited
evidence available suggests that these measures met with only varying degrees of success. Table A1 in the
Appendix provides more details of fiscal stimulus programs mainly discussed here.
3.4 Summary of Evidence on the Impact of Fiscal Responses to Major Macroeconomic Crises
A comparison of the Great Depression of the 1930s with the Great Recession of 2008-2009, in the specific
case of the US where more evidence is available, we can draw a few lessons.
First of all, resilient recovery requires smart policy decisions and balancing of sometimes conflicting
objectives: accelerating shovel ready projects (to create and maintain employment in the short run) and
spending on innovative programs (as part of the next wave of digital and resilience efforts). Within this
context, the ARRA used a hybrid approach, differently from the fiscal stimulus used during the Great
Recession. Some infrastructure funding went into preexisting programs. But ARRA also launched
innovative digital programs such as the National Broadband Plan and Broadband Technology Opportunities
Program as well as green programs (renewable generation, weatherization, and even new green financing
models). Those innovative programs now serve as models for the next wave of digital and resilience efforts.
In terms of estimated results, the impact of federal grants during the Great Recession are mixed, with a
stronger impact on consumption, and a negligible (sometimes even negative impact) on state per capita
22
income, due to the presence of significant crowding out. Public works and relief spending also generated a
weak multiplier. The wide range of multipliers for infrastructure spending, ranging from 0.4 to 2.2 for the
ARRA programs reveal a disagreement among economists about the effects of new spending, but can also
be interpreted as the differential impact of different types of investments some with short-run shovel ready
impact and others more oriented towards innovation and boosting longer-run growth. The employment
effects of ARRA were relatively modest, but nevertheless, transportation funding allowed state and local
governments to maintain employment in the transportation construction sector as well as in other sectors.
Despite more limited evidence, the Asian crisis also provides a few lessons. The resulting fiscal austerity
regime led to a ‘lost decade’ in infrastructure investments for many Asian countries. In countries such as
Indonesia and Korea, where public austerity prevailed, public works programs did lack targeting, and failed
to reach the poor who did not participate in the projects (World Bank, 2000). Unlike Europe, the few East
Asian countries that implement stimulus continued to do so until growth recovered, which led to a stronger
recovery. The large and rapid fiscal consolidation in Europe, instead, exerted a strong, negative impact on
growth.
4. Assessing the Impact of COVID-19 and Recent Infrastructure Programs
Of course, no crisis is the same. Nevertheless, the COVID-19 recession lands at an ideal time to learn from
these past stimulus programs. In fact, comparing historic crises with the economic crises induced by the
2020 COVID-19 global pandemic, there are at first sight some reasons to expect that spending might have
smaller multipliers. First, if the uncertainty in the current crisis is deeper than in previous crises, individuals
and firms could engage in more precautionary behavior, hoarding cash. Second, if fear of COVID-19 means
that people choose not to engage in travel and social activities, efforts to stimulate economic activity will
be less effective. Third, it may be difficult to target government injections to where there is a high marginal
propensity to spend. Fourth, the impact on expectations may be shaped more by emerging health risks than
by financial responses (Stiglitz, 2020). Additionally, employment impacts are very different with
construction unemployment rates almost half those of the harder-hit service-sector industries that have been
most negatively affected by the pandemic restrictions (US Bureau of Labor Statistics, 2021).
Although, the lessons learned from the literature would point to the higher effectiveness of providing
transfers rather than engaging in new investments during such a severe recession as COVID-19. The
coexistence of extremely low interest rates provides exactly the monetary policy setting in which
investment and spending are known to deliver the highest multipliers. Since the pandemic is still ongoing
and there is yet no relevant literature, the purpose of this section is to reflect on what the earlier literature
could mean in the current context.
The peculiarity of the COVID-19 crisis also has implications for the prioritization of different types of
infrastructure spending as part of any fiscal stimulus. Availability and access to infrastructure in many
developing countries have become more urgent amid the threat of COVID-19. The ability to mitigate
immediate health risks is often compromised by a lack of access to sanitation and public health
infrastructure. In 27 Sub-Saharan African countries, almost 60 percent of health center facilities are without
access to electricity (IEA, 2019a), and over 860 million people worldwide lack access to electricity,
severely limiting their ability to store medicines and food, charge phones, access digital information,
maintain access to education remotely or light their homes effectively (IEA, 2019b). Power outages and
blackouts could cost lives and be detrimental to critical medical equipment. Interruption of supply chains
for transport service could equally threaten the basic minimal delivery of food, fuel, medical supplies as
well as the movement of critical workers that keep the economy functioning.
23
In the context of COVID-19, digital technologies are providing the main channel for governments,
individuals and businesses to cope with social distancing, ensure business continuity, and prevent service
interruptions. The demand for online digital goods and services has soared. Even countries characterized
by adequate broadband connectivity, are experiencing increased data and voice traffic congestion that
compromise service quality. In a wide range of sectors, such as education, e-commerce, health, finance and
public sector service provision, essential goods and services are provided digitally within and across
national borders to substitute for goods and services that were previously acquired as a result of social
interaction. The shift to telework and distance learning only raises the urgency to reach universal access to
broadband connectivity.
The COVID-19 outbreak has resulted in supply chain disruptions and restrictions that led to delays and
cancellations in infrastructure projects. In addition, macroeconomic uncertainties and negative economic
outlook have decreased the availability of private financing for infrastructure projects. Compared to the
first half of 2019, Private Participation in Infrastructure (PPI) investments decreased by 56 percent in the
first half of 2020, with East Asia and Pacific being the most affected region characterized by a decrease of
79 percent, due to the redirection of funds to the health care and social protection sectors (World Bank,
2020). Private investment commitments are mainly directed towards a limited number of countries, pointing
also at the importance of public sector financing when private investments languish.
Figure 6: Regional Private Participation in Infrastructure (US$ million)
Source: Authors’ calculation based on World Bank’s Private Participation in Infrastructure (PPI) 2020 Half Year Report
In many countries, attention has now started to turn to long-run recovery plans. A trillion-dollar
infrastructure plan as a part of the new stimulus package has been announced in the United States. The
infrastructure plan would help boost the economy with a particular focus on roads, bridges, tunnels, 5G
wireless infrastructure and rural broadband. 7 The United Kingdom also announced a national infrastructure
plan involving capital spending of £100 billion. 8 The Malaysian government allocated 2 billion ringgit
(US$ 450 million) for infrastructure projects such as maintaining roads, bridges and streetlights at the
federal, state and local government level to protect small-scale contractors and encourage local economic
activities. 9
Measures undertaken at the beginning of the COVID-19 crisis were similar to those employed during the
2008-09 financial crisis and focused on immediate responses such as direct payments (stimulus checks).
7
https://www.forbes.com/sites/zackfriedman/2020/06/16/trump-may-want-1-trillion-of-infrastructure-for-next-
stimulus/#4deb1d9126ad
8https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/uk-preps-stimulus-for-infrastructure-
projects-tech-firms-8211-ft-58866134
9 https://www.aseanbriefing.com/news/malaysia-issues-stimulus-package-combat-covid-19-impact/
24
Historical experience reveals that in the absence of other interventions, when there is decline in economic
growth, public investment declines too (Abadie, 2020).
However, there is heterogeneity in terms of the focus of the infrastructure stimulus and spending. While the
stimulus of many advanced economies contain support for innovation (France), green growth (France,
Germany, Italy, Japan, Korea, United Kingdom), and expansion of digital infrastructure (Germany, Korea,
Japan), low-income developing countries have cut their total and capital spending (the Republic of Congo,
Sudan, Zambia) and increased several taxes (Angola) to offset pandemic related expenses, specifically in
health care, due to financial constraints (IMF, 2020). Indeed, compared to the previous global financial
crisis, some developing countries announced lower fiscal stimulus packages as a percentage of GDP, as
Figure 7 illustrates.
Figure 7: Comparison of 2009- 2020 Fiscal Stimulus Packages
Source: World Economic Forum, Future of Jobs Report October 2020
A stimulus can also address the country’s long-run needs, charting a new path for infrastructure policy for
decades to come. Based on lessons from past programs a promising fiscal stimulus is one that can deliver
immediate and long-lasting benefits, protect infrastructure investment and the current infrastructure
workforce and accelerate clean energy adoption, expanding broadband networks and digital skills
development. A path to build back better both for developed and developing countries include investment
in green infrastructure. This requires expenditures on fast and labor-intensive investments in the short run
that have high multipliers and co-benefits. Hence, it is crucial that these packages promote a cleaner,
environment-friendly alternatives instead of locking-in traditional, polluting energy production (Mundaca
and Damen 2015; Jaeger, 2020; Kaufman, 2020; Volz, 2020).
25
Some green measures also appear in the stimulus spending in response to COVID-19 (Figure 8). However,
compared to the Great Recession, green stimulus as a percentage of total stimulus is much lower. This is
due to the overall size of the economic recovery packages (much larger in 2020) and the fact that most of
it targets the essential emergency responses (Jaeger, 2020). As our previous analysis demonstrated,
compared to traditional stimulus, green stimulus, in many cases, has been singled out as more effective in
creating jobs. Focusing on green recovery can help not only in the short-run relief process but also in
achieving long-term recovery.
Figure 8: Green Stimulus as a Share of Total Stimulus
Source: Jaeger (2020)
5. Conclusions
The Keynesian approach according to which government spending can be used as a powerful stimulus,
particularly during times of high unemployment, led to extensive debates that started during the Great
Recession. While a large body of subsequent empirical work estimated fiscal multipliers, our review also
reveals major gaps in the literature, which point to an agenda for the future.
First, most of the empirical literature on the impact of fiscal stimuli is confined almost exclusively to
developed countries, and treats only broad categories of expenditure (transfers, tax cuts, public
expenditure). The lack of quality data on developing countries makes it difficult to understand to what
extent existing results would carry over to these very different economic settings. At the same time, the
lack of sectoral disaggregation of fiscal data, even for developed countries, limits what the literature can
cover on the relative efficacy of different types of spending with a view to providing guidance on
prioritization.
Second, there is no one-fits-all recipe for fiscal stimulus to stimulate the recovery as well as to find the
conditions under which the multiplier is more effective. We do not find robust evidence of multipliers being
higher during the different states of the economy and particularly during a recession. Moreover, under
crises, transfers are sometimes more effective than spending multipliers. Not every crisis is, however, the
same: deeper crisis can yield higher multipliers. The strongest evidence is that multipliers can be higher
when there is coordination between fiscal and monetary policy, especially under zero policy rates lower
bound.
26
A few emerging policy recommendations on the effectiveness of countercyclical fiscal policies against the
current COVID-19 crisis are explored. There are several reasons why COVID-19 spending might have
smaller multipliers, including more precautionary behavior, hoarding cash, amplified by fear that people
choose not to engage in travel and social activities, so that efforts to stimulate economic activity will be
less effective. At the same time, a countervailing consideration is that many countries are also facing the
kind of loose monetary policy conditions that help to increase the efficacy of fiscal stimulus.
Two types of infrastructure investments look to be of particular relevance to recovery from the COVID-19
crisis. The first is digital technologies, which have come into their own to support economic and social
resilience while complying with public health directives on social distancing. Accordingly, the demand for
digital goods and services has soared across the public and private sectors and exposed major deficiencies
in the availability and performance of broadband infrastructure. The second category is green infrastructure,
which offers relatively good performance on job creation, while at the same time shifting economies to
lower carbon emission trajectories in the context of increasingly pressing global climate targets.
Investments such as rural electrification, public transport, energy efficiency and renewable energy offer the
possibility of contributing simultaneously to economic, environmental and social goals.
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Table A1: Experience of 2009 Stimulus Around the World
Country/Region Authors Data Time Coverage Stimulus Findings
Australia Li & Spencer (2016) Output growth rate, March 1993- More active spending measures- transfers Stimulus transfers were almost equally important as the
inflation, domestic interest December 2013 to households and expenditures on public concurrent monetary easing actions in helping the economy to
rate, growth rate of works avoid recession
government transfer
payments (quarterly)
Australia Leight (2012) Household survey data December 2008 - US$ 21 billion household payments 40% of households who received a payment spent it indicating
May 2009 between December 2008 and May 2009 individuals are more likely to spend “bonuses” than “rebates”
as in the US
Australia Buddelmeyer&Peyton Expenditure data for 62 July 2004 - June Lump-sum cheques sent to households as Increased spending in electronic gaming machine in
(2014) local government area and 2012 compensation for the introduction of December 2008 amounted to 1% of total stimulus for that
electronic gaming Carbon Tax period.
machine data Individuals are more likely to spend “bonuses”
China Xiang et al. (2019) Sample of 143 banks 2006-2013 the effect of the 2007 Global Financial crisis and the 2009
(including the big five, stimulus package on various overall and segment efficiencies
joint stock, city, rural and is inconsistent & inconclusive
foreign)
New Zealand Giesecke & Schilling Real consumption, October 2008- Cutting to personal income & business Small positive impact on short-run employment with a gain
(2010) investment, public March 2009 taxes and infrastructure spending (0.3% around 10,000 jobs but at a cost to long-run consumption
consumption, export & (with predictions till of GDP for 3 years; 2009-2011)
import volumes, 2017)
employment real wage
terms of trade
Thailand Muthiacharoen et al. Account-level loan data December 2009- Car-buyer tax rebate during 2011-2012 The design of durable goods stimulus policy should focus
(2019) (loan composition and March 2016 more on productive business durables than on consumer
history, demographic durables since it may lead to excessive debt burden and create
information) an adverse consequence in the longer term
The Caucasus, Mitra (2010) Macroeconomic indicators 2000-2009 (main Need for more concessional financing to moderate the
Central Asia and (GDP growth, current focus) tradeoff between stimulus and sustainable debt levels.
Mongolia account balance, terms of Importance of distressing in the banking sectors through
trade, loan to deposit liquidity support and deposit guarantees
ratio…)
Turkey Misch & Seymen Financial Crisis Surveys 2009-2010 Cutting the value added tax and special Positive and robust effects of consumption tax cuts on the
(2019) Data, change of sales of consumption tax in the first quarter of change of firm sales
firms, additional firm 2009
specific controls (number
of employees, share of
38
exports, received state aid
or not…)
Turkey Taymaz (2010) Changes in domestic 2008-2009 Special Consumption Tax reduction on Special consumption tax cuts increased automobile sales and
demand for passenger and motor vehicles domestic automobile production
changes in exports
United Kingdom Barrell & Weale Aggregate consumption 1992-2010 Temporary VAT cut A2.5% reduction in VAT is likely to result in consumption
(2009) data (quarterly) (with a focus on being augmented by less than 1% by the fourth quarter to
2009-2010 period) 2009. GDP is likely to be raised less than 0.5% relative to the
case without the VAT increase.
United States Taylor & O’Sullivan Real per capita federal 11 postwar Fiscal stimulus polices should follow three T’s—timely,
(2017) expenditures, government recessions targeted, and temporary: (1) it took 10.9 months on average
revenue (1948-2015) before a recession’s start and the first major countercyclical
fiscal policy action. (2) The stimulus was not temporary in the
4/8 recessions where fiscal policy was attempted. (3) In many
cases recessions provided politicians an avenue in which to
implement policies that were part of their long-run reform
agenda rather than being carefully targeted countercyclical
fiscal policy.
United States Mian & Sufi (2012) 957 U.S. metropolitan or January 2004 -June The Car Allowance Rebate System Program induced the purchase of an additional 370,000 cars in
micropolitan statistical 2010 program - temporary subsidies to July & August 2009.
areas (CBSAs) for encourage the trading in old cars and reversal impact 10 months after the program expired
buying new ones
United States Chodorow-Reich et State level income and December 2008- $88 billion of aid to state governments Positive relationship between receiving fiscal relief and
al. (2012) employment July 2009 (main through the Medicaid reimbursement increases in employment
focus)
Europe Nickel and Tudyka Real GDP, government 1970-2010 A one percentage point of GDP increase (expansionary fiscal
(17 countries) (2014) consumption, private shock) in government consumption is first followed by
investment, debt-to-GDP positive cumulative responses of real GDP and negative
ratio, trade balance responses of private investment and the trade balance as a
share of GDP
G20 Spilimbergo, 2008 Global crisis The low set of fiscal stimulus multipliers included 0.3 on
Symansky, and revenue, 0.5 on capital spending and 0.3 on other spending
Schindler (2009)
World Agnello et al. (2017) Panel of 157 countries 1960-2010 An increase in inequality increases the probability of
(Gini, real GDP growth government crises. However, this impact is decreased when
rate, fiscal stimulus expansionary fiscal stimulus episodes are in place.
packages)
World Aizenman & Jinjarak Size of fiscal stimulus, 2007-2009 A lower debt/average tax base is associated with higher fiscal
(2011) exchange rate (main focus) stimulus and lower trade openness is associated with a higher
depreciation, trade fiscal stimulus and lower depreciation rate during the crisis
openness, fiscal capacity
39
Dogo Bis
B. La croissance économique et la qualité des institutions

réduisent-elles la pauvreté et les inégalités en Afrique de
l'Ouest ? (English). Journal of Policy Modeling

Available online at www.sciencedirect.com
ScienceDirect
Journal of Policy Modeling 44 (2022) 41–63
Do economic growth and institutional quality reduce

poverty and inequality in West Africa?
Hugues Kouassi Kouadio, Lewis-Landry Gakpa ∗
Ecole Nationale Supérieure de Statistique et d’Economie Appliquée (ENSEA), 08 BP 03 Abidjan 08, Côte d’Ivoire,
Abidjan, Côte d’Ivoire
Received 23 May 2021; received in revised form 12 August 2021; accepted 9 September 2021
Available online 10 December 2021
Abstract
Over the past two decades, the West African region has experienced much faster economic growth than
other parts of the world. However, despite this economic upturn, the region has continued to experience
high levels of inequality and poverty, yet economic growth is considered to be one of the main drivers of
poverty reduction. An interesting literature indicates that local conditions may limit the expected effects of
economic growth on poverty and income inequality. In this study, we are interested in the role of institutional
factors that have been largely ignored in explaining poverty reduction and inequality outcomes in this region.
Thus, this study empirically examines the role of economic growth and institutional quality on inequality
and poverty reduction in West Africa. Using data from the World Development Indicators (WDI), the
International Country Risk Guide (ICRG) and the Standardized World Income Inequality Database (SWIID),
our results show that economic growth remains a necessary condition for poverty reduction and that the
overall improvement in the quality of institutions contributes significantly to reducing poverty and income
inequality in the long term. This contribution is made in particular through the improvement of democratic
institutions, the alleviation of bureaucratic constraints, the quality of the judicial and regulatory system, the
control of corruption and the quality of government stability. Furthermore, we show that improvements in
the judicial system, low levels of corruption and better bureaucratic quality happen to be prerequisites for
∗ Corresponding author.
E-mail addresses: hkouadio@ensea.ed.ci (H.K. Kouadio), gakpalewis@yahoo.fr, gakpalewis@ensea.ed.ci
(L.-L. Gakpa).
https://doi.org/10.1016/j.jpolmod.2021.09.010
0161-8938/© 2021 The Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.
H.K. Kouadio and L.-L Gakpa Journal of Policy Modeling 44 (2022) 41–63
economic growth to significantly reduce income inequality. These results therefore call on policy makers
in the West African region to improve their institutional framework and especially these dimensions with a
view to enabling the region citizens to improve their living conditions.
© 2021 The Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.
JEL classification: O1; O43; D3; I3
Keywords: Economic growth; Institutions quality; Income inequality; Poverty
1. Introduction
Over the past two decades, the average sub-Saharan GDP growth was 5% per year. It is ranking
as the fastest region around the globe. As a result of this dynamic growth, poverty rate has slightly
declined to 56 in 1990 and 43% in 2015 (World Bank, 2018). But this decline is far below the target
rate which was 28.2 and making Africa the region with highest poverty rates on earth (Senbet
and Simbanegavi, 2017). Moreover, over the period 2000–2015, the number of extremely poor
people increased by more than 100 million in this region (Barrett et al., 2017). Thus, the growth
elasticity of poverty has been quite low in Africa due to high levels of inequality (Odusola, 2017).
As long as unfair distribution of growth exists, the poverty alleviation will not be effective.
The West African region is in a similar situation as most countries in Africa in the south of
Sahara. The West African region has experienced impressive economic growth over the past two
decades. For instance, six of the ten fastest growing economies in Africa were in West Africa
(Coulibaly, 2019, chp 2). However, in most countries, the benefits of this unprecedented economic
growth have accrued to only a few people. Regional inequality has reached extreme levels in the
region, nowadays the wealthiest population account for 1% in West Africa and they own the entire
wealth within this region (Oxfam, 2019). While development indicators show a significant growth,
income inequality is persistent, and the poor population is significantly growing. As a result, West
Africa with the largest population in Africa, has the largest poor population accounting for 30%.
These population live in extreme condition with $1.90 a day. This makes West Africa the poorest
regional bloc in Africa.
These periods of high economic growth that have not translated into significant reductions in
poverty and inequality in West African countries raise the question of why poverty and inequality
still remain at such high levels in this region and are falling so rapidly in East Asian and Pacific
countries. Numerous studies attempted to answer this question by looking for factors that may
block or promote reduction (Avom and Carmignani, 2008). In this perspective, the work of Rodrik
(2000), Adams (2004), Ravallion (2007, chp 2), Panagariya (2010) and Dollar et al. (2013), show
that without rapid and sustained1 economic growth, there is little hope of significantly reducing
poverty in poor countries. The evidence also supports his findings. Indeed, since 1950, the 13
economies2 considered successful in terms of poverty reduction have recorded economic growth
1 Sustained growth is the pathway to achieving essential things that matter to people: poverty reduction, productive
employment, education, health, and opportunities to be creative (Growth and Development Report, 2008). Hausmann
et al. (2005) consider accelerated growth to be sustained when it lasts for at least eight consecutive years.
2 The 13 success stories cited by the commission: Botswana, Brazil, China, Indonesia, Japan, Republic of Korea,
Malaysia, Malta, Oman, Singapore, Taiwan China and Thailand
42
of 7% or more over a period of at least 25 years.3 In contrast, sub-Saharan Africa and the Europe-
Central Asia region have had the lowest growth and poorest poverty reduction performance (Lin,
2008).
On the other hand, alongside this argument that “sustainable growth is good for the poor”,
some argues that economic growth can exacerbate income inequality and therefore impede the
pace of poverty reduction (Ravallion and Chen, 2007). In other words, a country can have a
high average growth rate without any benefits for the poorest households if income disparities
have increased significantly, i.e. the rich have become richer while the incomes of the poor have
stagnated or declined. This was the case for Brazil, Russia, India, China, and South Africa (BRICS)
which despite a long period of relatively continuous and high growth rate and above the OECD
average growth rate in the 2000s, became more unequal (Porras, 2015). It is well established in
the economic literature that high inequality inhibits the positive effect of economic growth in
reducing poverty (Thorbecke, 2013; Basu, 2013; Ncube et al., 2014; Fosu, 2016; Ostry et al.,
2018).
Others argue that inefficient and failing institutions in African countries make these economies
vulnerable and may explain their economic backwardness (Stiglitz, 2011). This highlights the
importance of the institutional framework in the process of reducing poverty and inequality; the
quality of institutions can even be seen as the primary determinant of poverty reduction. In this
respect, we can mention the work of Dollar and Kraay (2000) and Ravallion and Chen (2003)
who argue that in a good institutional policy environment, economic growth can reduce poverty.
Also, the work of Acemoglu and Johnson (2005), recognises that poor institutions make activities
unproductive, which in turn weakens long-term growth and worsens poverty. In contrast, efficient
institutions enable society to move forward properly, by making their citizens more able to invest
their time in productive activities. Countries can thus become richer by building institutions that
are more efficient in quality. In the same vein, Knack and Keefer (1997) followed by Perera
and Lee (2013), reveal that the situation of poor countries is worsening because of institutional
failures. Indeed, these authors argue that the poor quality of institutions compromises the security
of property rights. This uncertainty about property rights can discourage foreign investment and
lead to lower economic growth, which in turn can lower the rate of poverty reduction. Gupta
et al. (1998), have shown that the most corrupt countries are affected by sustained poverty and
that anti-corruption strategies can reduce income inequality and poverty. The work of Chong and
Calderon (2000a) and Chong and Gradstein (2007), reach the same conclusions.
The institutional issue thus has an undeniable relevance insofar as the failure of economic
recovery in a context of underdevelopment can no longer be explained solely by economic factors,
but also by non-economic factors, in particular the quality of institutions (North, 1981; Jones,
1981). By exploring this new avenue of research, it becomes possible to explain almost entirely the
failures of developing countries (Keho, 2012). Thus, the most recent studies attempted to highlight
the poverty-reducing effect of institutions (Perera and Lee, 2013). However, these analyses are
rarely conducted on samples from developing countries such as those in West Africa. Yet, there
are several reasons for investigating this issue in this region with a view to identifying policies
that can be implemented to effectively address income inequality and poverty in this area. One
of the main reasons for this is that the institutional environment in the West African sub-region
has been marked by repeated socio-political crises, armed conflicts and unconstitutional changes,
corruption and a host of governance problems that are not conducive to investment. For example,
3 Growth and Development Report (2008).
43
among the issues that occurred in the region, there are post-election crisis in Côte d’Ivoire in
2010/2011, the problem of insurgency in Nigeria with Boko Haram, the issues of terrorism in
Mali and more recently in Niger and Burkina, the coups d’état in Guinea-Bissau, etc. These
worrying situations have greatly weakened the institutions of the countries in this region4 (Ajide
and Raheem, 2016).
These institutional weaknesses could therefore help explain the level of inequality and poverty
in this region in several ways. In fact, it is recognised that countries in sub-Saharan Africa suffering
from institutional weaknesses are generally characterised by persistent conflict and high levels
of political instability, poor governance, insufficient and deteriorating physical infrastructure,
low levels of human capital5 etc. All these structural and economic constraints that constitute
deep characteristic of institutional fragility could explain the mixed effects of economic growth
spillovers on poverty in sub-Saharan African countries in general and the West African sub-region
in particular.
Another reason for conducting this research is that this issue has not been previously researched
in the context of countries in the West African region. Institutional variables have been largely
ignored in explaining outcomes in terms of poverty reduction and income inequality. This study
fills this gap and adds to the empirical literature by examining the case of countries in the West
African region.
Finally, from the perspective of economic policy, assessing the role of institutions in reducing
poverty and inequality would quantify the risk that poor quality institutions pose to the achievement
of development goals. The results of the study would thus provide a documented source of
information on the real burden of the institutional environment on development efforts and would
thus allow for a better consideration of this parameter in designing strategies to combat inequality
and poverty in the area with high levels of inequality and poverty. The results of this study will
guide policymaker’s actions.
To achieve these objectives, the study uses an estimation technique that is relatively efficient
compared to the usual panel data methods. More precisely, we use the Pool Mean Group (PMG)
method proposed by Pesaran et al. (1998). The advantage of this estimation method compared to
the classical methods is that it introduces heterogeneity in certain coefficients to be estimated6
. Indeed, the PMG method reconciles in the same specification the routine approach imposing
fixed coefficients and the one assuming country-specific coefficients. Thus, we can specify that
the long-term relationship between the variables is identical for all countries but that each country
follows its own dynamics to converge towards this common relationship. This assumption seems
reasonable to us for the countries of the West African region that aim at the long-term convergence
of their economies.
The rest of the paper is organised as follows. The second section briefly presents an overview
of the existing literature. Section 3 deals with the methodology and variables used to conduct the
4 The analysis of different institutional indicators from different databases (Mo Ibrahim Foundation, World Bank,
Transparency International, ICRG, Freedom House, Fraser Institute) shows that the institutions in this region are deficient
and failing.
5 AfDB Fragile States Unit, Bank’s public sector operations in fragile states: lessons learnt and recommendations,
Washington, DC: World Bank, 2011.

6 Indeed, many studies have confirmed the strong heterogeneity of this area (Djogbenou et al., 2018), due to different
sizes, different economic and social structures, different institutional framework, different socio-cultural contexts. It is
therefore necessary to take this into account in order to achieve robust results.
44
study. The results of the estimations are analysed and discussed in Section 4. The study ends with
a conclusion that highlights the main results and policy recommendations.
2. Review of the literature
This section goes through respectively the theoretical and empirical work on the relation-
ship between economic growth and poverty, the relationship between growth and inequality,
the relationship between institutions and poverty and the relationship between institutions and
inequality. We will see that these different relationships are still ambiguous and, moreover, that
previous research has not focused on the West African region.
2.1. Relationship between economic growth and poverty
Debates about the links between growth and poverty are not new. They emerged at least two
centuries ago with industrial capitalism and were central to the thinking of political economists
such as Adam Smith, Karl Marx and John S. Mill. For them, accumulation and enrichment were
seen as a means to eliminate misery and scarcity. The findings of the Human Development Report
(HDR, 2003) converge towards the same results. Indeed, according to these, it is the lack of
economic growth in many countries during the 1990s that has been the source of their inability
to combat income poverty. The findings also show that the regions with the fastest economic
growth (East Asia and Pacific countries and South Asia countries, with growth rates of 6.4% and
3.3% respectively) have reduced income poverty the most (by 14.9 and 8.4 percentage points
respectively). The results of the Commission on Growth and Development report (2008) also
point in the same direction.
The development of poverty data has enabled time series econometric studies. The work of
Dollar et al. (2013), covering a sample of 118 developed and developing countries over the period
1967–2011, confirmed the crucial importance of economic growth in poverty reduction. These
results are consistent with those found by Dollar and Kraay (2002) and Kraay (2004). Ravallion
and Chen (1997) found a very strong relationship highlighting the link between growth and poverty
reduction.
Fosu (2015), focusing on a sample of sub-Saharan African countries also found that economic
growth plays a crucial role in reducing the incidence of poverty. Anand et al. (2014), in examining
the role of growth and equity in poverty reduction in India, conclude that robust economic growth
has played a major role in reducing poverty in that country.
In contrast to these studies which have found beneficial effects of economic growth on poverty
reduction, others argue that continued economic growth can perpetuate poverty (Streeten, 1993,
Escobar, 1995). For example, the work of Eastwood and Lipton (2001) followed by Donaldson
(2008) using the same data as Dollar and Kraay (2002) has shown that economic growth does not
always benefit the poor. Ncube et al. (2014) also found non-significant results between economic
growth and poverty in the North Africa and Middle East (MENA) region. Negative or insignificant
results between growth and poverty have also been found by Basu and Mallick (2008) for India,
Balisacan et al. (2003) for Indonesia.
In sum, the assertion that economic growth is good for poverty continues to be challenged by
empirical studies. Indeed, as can be seen, the various studies on the subject have produced mixed
results.
45
2.2. Relationship between economic growth and income inequality
Since Kuznets (1955), a great deal of work has been done to try to verify the relationship
between growth and income inequality. Most recently, Brida et al. (2020) have reviewed the
relationship between the two entities at length. This review shows that empirical investigations
of the link between economic growth and inequality lead to ambiguous and inconclusive results.
Indeed, while some works, such as Knowles (2005), Chambers and Krause (2010), Khalifa and
El Hag (2010), Herzer and Vollmer (2012) found a negative relationship, those of Forbes (2000),
Barro (2000), Voitchovsky (2005), Bengoa and Robles (2005), and Castelló-Climent (2010) came
up with a positive link. The work of Perotti (1996) and Barro (2000) found a non-significant
relationship between economic growth and income inequality.
Besides these works, others find an inverted U-shaped relationship (Bengoa and Robles, 2005)
and some even find no significant relationship (Perotti, 1996; Barro, 2000).
In view of these mixed empirical results, the question of the relationship between economic
growth and income inequality seems to be not yet fully resolved, thus warranting further investi-
gation of the issue to understand the nature of the link between the two concepts.
2.3. Relationship between institutions and poverty
The issue of the influence of institutional quality on poverty is one of the least addressed
themes in the research. Since the work of North (1990), studies have focused on the question of
the tendency of institutions to promote growth, showing that an effective institutional environment
is one that facilitates economic transactions and minimises uncertainty. According to Acemoglu
(2003), the two main factors put forward as fundamental explanations for prosperity gaps between
countries are geography and institutions. The second assumption, the institutional assumption, is
based on human intervention according to the author: some societies have good institutions that
encourage investment in equipment, human capital and efficient technologies and, as a result, they
prosper economically
Among the few works that have explored the link between institutions and poverty are Ravallion
and Chen (2003) and Dollar and Kraay (2000). Indeed, these authors acknowledged that in a
good institutional policy environment, growth reduces poverty. The indirect effect of institutions
is mainly through the economic growth channel. Thus, poor institutional quality undermines
economic growth and therefore reduces the pace of poverty alleviation and vice versa. According
to Sachs (2003), the concept of institution has become the main objective of any economic reform.
Some authors, such as Acemoglu et al. (2001), Rodrik (1999), Easterly and Levine (2003), Glaeser
et al. (2004) and Sachs (2003), go even further to suggest that the economic growth level in a
country is almost entirely explained by its institutions, resources, economic policy, geography,
etc.
Thus, countries can become economically richer through the development of more efficient
institutions. Institutional failure is, however, at the root of persistent poverty and economic inequal-
ity. Indeed, efficient institutions enable society to move forward properly, by making its citizens
more able to invest their time in productive activities (Acemoglu and Johnson, 2005). In other
words, on the one hand, good institutions provide a strong environment for promoting the growth
of productive activities such as investment. On the other hand, failing institutions can negatively
affect economic growth through R̈ent-seeking.̈ Also, poor institutions make activities unproduc-
tive, which in turn weakens long-term growth and worsens poverty. Chong and Calderon (2000a),
for example, using cross-sectional data over the period 1960–1990, have shown that the better
46
the institutions in a country, the lower the incidence and severity of poverty. In the same vein,
Tebaldi and Mohan (2010), using eight alternative measures of institutions and the instrumental
variables method, show that an economy with a strong system of corruption control, an effective
government and a stable political system will create the conditions necessary to promote eco-
nomic growth, minimise income distributional conflicts and reduce poverty. Their results also
reveal that the quality of the regulatory system, the rule of law, voice and accountability, and the
risk of expropriation are inversely related to poverty.
Corruption, which is also one of the symptoms of institutional failure, is often seen as the
main cause of the slow pace of poverty reduction. Proponents of this idea argue that corruption
reduces growth (Mauro, 1995; Mo, 2001). Gupta et al. (1998) have shown that the most corrupt
countries are affected by sustained poverty and that anti-corruption strategies reduce income
inequality and poverty. Therefore, the authors argue that corruption leads to increased inequality
and poverty. Also, corruption leads to several problems such as lower economic growth, lower
taxes, less effective social programmes, poor access to education, policies that favour unequal
distribution of assets, lower social spending and increased investment risks. Thus, it is generally
accepted that the first victims of corruption are the people from the poorest social strata. Indeed,
corruption maintains and causes adverse effects on poverty (Mauro, 1995). It encourages policies
that distort income distribution and divert resources from the countryside to the cities. In addition,
in the context of aid projects for the poor, this corruption distorts infrastructure investments for
small microfinance enterprises. Also, for corrupt governments, the fight against poverty is only
theoretical. Also, Kaufmann et al. (1999) have shown that corruption increases infant mortality
and literacy rates and decreases life expectancy. As a result, the poverty index is negatively
correlated with the various governance and corruption control indices. Furthermore, Knack and
Keefer (1997) suggest that the situation of poor countries is worsened by institutional failures.
As a result, these countries fail to achieve advanced technologies due to a weak institutional
environment.
In addition to these works that highlight the harmful role of poor-quality institutions in poverty
reduction, some studies, such as Hasan et al. (2007), show that governance indicators have no
effect on poverty, although the signs of the coefficients found are negative. However, some authors
such as Tebaldi and Mohan (2010) have questioned the robustness of these results, as they believe
that they may be affected by endogeneity bias and multicollinearity issues.
Studies that have examined this issue have obtained controversial outcomes in different regions.
However, it would be interesting to examine the quality of institutions and its effect on poverty
in the context of the West African region, taking into account individual heterogeneity.
2.4. Relationship between institutions and inequalities
Kempf (2008) shows that there is empirically a clear correlation between democracy and
inequality. Indeed, the author finds that 95% of countries that are more equal than the average,
using the Gini coefficient as a measure of inequality, are classified as “democracies”, but only
75% of countries have a Gini coefficient above the average. In a coherent development, the author
points out that democratic institutions make elected governments preoccupied with education and
training, either for ideological reasons: democracy requires citizens capable of intervening in a
public debate and therefore trained, or for pragmatic reasons of enrichment: the development
of democracy is inseparable from the development of the market economy, and the elites who
govern both processes share the idea that training, science and techniques are indispensable.
Yet education, by changing the structure of qualifications, ultimately changes the distribution
47
of income. It is difficult to know whether this is in the direction of a reduction in inequality or

not. Depending on the country, the two cases have succeeded each other over time. But, in any
case, there is an important causal mechanism linking institutions and inequalities. The author
also showed that the political regime, even within a democracy, has an impact on the political
assets of redistribution. In the sense that a majority electoral system pushes politicians to be more
concerned with the median voter, even if it means giving less importance to the extremes of the
distribution: this is the famous “protection of the middle class”.
Similarly, Acemoglu et al. (2005) show that the quality of institutions at time t determines the
level of income inequality at time t + 1. Besides these authors, others find that the relationship
between institutions and inequality is not univocal in the sense that the relationship between
inequality and institutions has a reciprocal causal character. Indeed, according to Johnson et al.
(2007), the existence of high inequality in a society negatively affects the quality of institutions by
favouring elites. Indeed, a society with high inequalities will create institutions biased in favour
of political or economic elites (Acemoglu et al., 2005). Subsequently, these institutions will only
exacerbate the level of inequality and increase exclusion. Thus, inequality and institutions interact
to create a vicious circle. Breaking this circle would be the result of an autonomous will (Lahimer,
2009).
From an empirical point of view, Easterly (2007), using a sample of 100 developing and
developed countries and instrumental variables technique, found a negative relationship between
the quality of institutions (measured by Kaufmann and Kraay indicators) and the level of income
inequality. Gyimah-Brempong (2002) found in a sample of 21 African countries over the period
1993–1999 that the increase in corruption is positively correlated with income inequality. Similar
results were also obtained by Chong and Gradstein (2007).
Other studies show that there is a U-reverse relationship between income inequality and insti-
tutions. In this respect, we can cite the work of Li et al. (2000) and Andres and Ramlogan-Dobson
(2011). On the other hand, the work of Chong and Calderon (2000b) shows that in developing
countries, improvements in the quality of institutions would be associated with greater income
inequality, whereas in developed countries, these improvements would lead to a more equitable
income distribution.
Although theoretical research agrees on the role that institutions could play in reducing inequal-
ity, the empirical evidence on the relationship between institutions and income inequality is still
ambiguous. In view of these controversial empirical results, the question of the relationship
between institutions and inequality seems to be not yet fully resolved. This paper is a contribution
to this literature and has the interest of considering different types of institutions to assess their
impact on the reduction of inequalities in West Africa.
3. Methodology
The aim of our empirical analysis is to examine the effects of economic growth and institutional
quality on poverty and inequality in West Africa.7 To this end, we use a specification that is broadly
similar to that of Perera and Lee (2013). We then specify the following two equations:
Povi,t = θ0 + θ1 Yi,t + θ2 Insi,t + θ3 X1i,t + εi,t (1)
7 West Africa is an area comprising 16 countries: Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, Gambia, Ghana,
Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo. Due to data availability
or long series, the following countries were removed from the sample: Benin, Cape Verde, Liberia and Mauritania.
48
INEGi,t = α0 + α1 Yi,t + α2 Insi,t + α3 X2i,t + ϑi,t (2)

where the dependent variables Pov and INEG represent, respectively, the indicators of poverty
and income inequality. Y, the growth rate of real GDP per capita, INS, the vector of institutional
variables. X1 and X2 are vectors of control variables that are supposed to influence the level of
poverty and income inequality, respectively. ε and ν are the error terms of the models. t, is the
time dimension, i, is the individual dimension.
3.1. Choice of variables and data source
We present the data and their different sources.
3.1.1. Data presentation

The set of explanatory variables is divided according to the theoretical objectives of each of the
two equations. Furthermore, we study the correlation matrix between the variables of the model
to avoid statistical bias and reduce the risks of endogeneity.
3.1.2. The poverty equation

As one of the objectives of this research is to analyse the effects of economic growth and
institutions on poverty, we describe the different proxies used in the first equation in the economic
literature.
• Dependent variable
The scarcity of data on poverty is a major problem for economists when it comes to sub-Saharan
African countries in general and the West African region, for example. Indeed, poverty data in this
region are derived from national surveys conducted between generally long time intervals. Given
that time series data on poverty in West Africa are very limited, we have chosen, like Odhiambo
(2009), Uddin et al. (2014), and Keho (2017), to use final household consumption per capita
as a proxy for poverty in this study. This measure of poverty seems to us to be consistent with
that proposed by the World Bank, which defines poverty as “the inability to attain the minimum
standard of living” measured in terms of basic consumption needs.
• Variables of interest (institutional variables)
To better appreciate the role of institutional variables in reducing inequality and poverty, follow-
ing the work of Perera and Lee (2013) and Chong and Gradstein (2007), we use five institutional
variables from the International Country Risk Guide database produced by the “Political Risk
Service Group” (PRS Group).8 These are democracy, quality of the bureaucracy, compliance with
legal texts and laws, government stability and corruption. In addition, we constructed an aggregate
indicator of institutions from the five institutional dimensions selected to assess the effect of the
general level of institutions on poverty and inequality.
• Independent variables
8 The main advantage of these data over other institutional indicators is that they are available over a relatively longer
period of time to analyse the dynamics of institutional variables and their influences on poverty and inequality.
49
Among the other explanatory variables, we retain those used in most empirical studies on
poverty (Kiendrébéogo and Minea, 2013; Ncube et al., 2014; Keho, 2017). These include the
domestic investment rate, the population growth rate and an indicator of financial development
(domestic credit to the private sector9 ).
3.1.3. Income inequality equation

The second equation explains income inequality. In this equation we introduce our variables
of interest, namely the logarithm of real GDP per capita and the institutional variables
• Dependent variable
The variable to be explained is the Gini coefficient: this is the most widely used indicator to
study income inequality (Kaulihowa and Adjasi, 2017; Ncube et al., 2014).
• Control variables
Following the literature, the vector X2 of control variables includes foreign direct investment
and the initial level of primary school enrolment as a measure of the influence of education.
3.2. Data sources
The study uses annual data covering the period from 1984 to 2015. The choice of this period
is linked to the availability of data on institutional variables and on income inequality over this
period. Data on the control variables and the poverty variable are collected from the World Bank’s
World Development Indicators (WDI) database. Data on institutional variables are obtained from
the ICRG database. Data on income inequality are from the Standardized World Income Inequality
Database (SWIID) by Solt (2016).
4. Empirical results and discussions
4.1. Descriptive statistics
Table 1 summarises the statistical properties of the variables used. For comparison purposes,
the coefficient of variation (CV), (.dev/mean) is used to interpret the relative magnitude of the
standard deviation of the variables of interest. The results show strong variations. Overall, the
institutional variables show high coefficients of variation, followed by the poverty indicator and
the Gini index.
9 Access to financial services is a key determinant of poverty (Kiendrébéogo and Minea, 2013; Boukhatem and Mokrani,
2012). Indeed, financial development can improve opportunities for the poor to access formal finance by reducing the
cost of lending to small borrowers, which can reduce poverty. Similarly, a well-functioning financial system can enable
the poor to access financial services, thus enabling the poor to earn a sustainable living (Zahonogo, 2017). The choice of
domestic credit to the private sector is justified by the fact that it has a clear advantage over other interest rate measures or
monetary aggregates (such as M1; M2 or M3) because it more clearly represents the actual volume of funds channelled
to the private sector. It also appears to be the most appropriate indicator for developing countries such as Côte d’Ivoire
because most financial development takes place in the banking sector as opposed to industrialized countries where a
significant part of financial development occurs beyond the banking system.
50
Table 1
Descriptive statistics.
Variables Obs. Mean Std. Dev. Min Max CV
Pov 375 77.255 11.942 29.8771 117.814 15.45

Gini 378 0.610 0.0761 0.488 0.868 12.47
LogPibtete 382 6.5924 0.468 5.609 7.844 7.10
Tsbp 340 70.614 25.453 22.673 128.044 36.04
Inv 381 18.869 9.115 −2.424 58.947 48.30
Ide 382 1.9503 3.414 −28.624 32.301 175.05
Tcpop 384 2.728 0.665 −0.444 4.978 24.38
Credsp 372 12.302 7.785 0 40.163 63.28
Demo 384 4.592 1.962 0.694 8.333 42.73
BurQ 384 3.008 2.211 0 7.5 73.50
Corr 384 3.731 1.398 0 6.666 37.47
Law&order 384 4.512 1.408 0 8.333 31.20
StabG 384 5.888 1.926 0 9.166 32.71
INSQ 384 4.346 0.998 2 6.701 22.96
Source: Authors’ computation based on the SWIID, ICRG and the World Bank databases.
4.2. Analysis of multicollinearity
The analysis of multicollinearity is useful, it allows to verify that a model does not incorporate
explanatory series that are related to each other. Multicollinearity creates numerical and statis-
tical problems that result in potentially serious estimation difficulties10 (Erkel-Rousse, 1995).
Tables A1 and A2 in Appendix A present the matrix of correlation coefficients between the dif-
ferent explanatory variables selected in each equation. As can be seen, the test concludes on the
whole that there is no significant multicollinearity between the variables. However, the results
reveal some correlation between the institutional variables. Therefore, in order to avoid possible
multicollinearity between these institutional variables, they will be introduced one by one in the
different estimations.11
4.3. Unit root tests
With a view to ensuring the robustness of our estimates, it is necessary to assess the properties
of the data. To test the existence of unit roots in our series, the Im, Pesaran and Shin (IPS) tests on
panel data were considered appropriate because they are suitable for non-cylindrical panels and
take into account the heterogeneity between individuals in the panel. Table 2 presents the results
of the unit root test.
The results show that the variables are either stationary in level or stationary in first difference.
However, when all variables are considered in first difference, they all appear stationary.
The results of the unit root tests show that none of the variables is integrated of an order higher
than 1, which according to Pesaran et al. (2001) presumes the existence of a long-term relationship
10 Multicollinearity favours an instability of the estimated coefficients, an increase in the estimated variance of certain
coefficients, (Bourbonnais, 2015).

11 To remedy the problem of multicollinearity, the only really effective solution is to eliminate the explanatory series likely
to represent the same phenomena and therefore to be correlated with each other, to avoid the mask effect (Bourbonnais,
2015).
51
Table 2
Panel unit root test.
Variables IPS -level IPS-first diff.
Statistic p-Value Statistic p-Value
Pov −3.0955*** 0.0010 −12.4482 0.0000

Gini −0.2962 0.3835 −9.5473*** 0.0000
Logpibtete 2.5966 0.9953 −8.1182*** 0.0000
Tsbp 6.6279 1.0000 −8.3428*** 0.0000
Inv −0.1717 0.4318 −14.0215 0.0000
Ide −3.3216 0.0004 −13.3137 0.0000
Tcpop −9.1513 0.0000 −14.3409 0.0000
Credsp 0.6354 0.7374 −8.2066*** 0.0000
Demo −1.4576* 0.0725 −8.0118*** 0.0000
BurQ −1.1777 0.1195 −9.0679 0.0000
Corr −0.5836 0.2798 −8.3699 0.0000
Loi&ordre −0.8131 0.2081 −7.2295 0.0000
StabG −0.5467 0.2923 −6.0009 0.0000
INSQ −0.6766 0.2493 −7.2274 0.0000
Note: (***), (**), (*), denotes 1%, 5% and 10% significance level, respectively.
between the variables. To test for cointegration, the use of the ARDL approach (Autoregressive
Distributed Lags) is therefore the most appropriate.
4.4. Co-integration analysis
After testing the stationarity of the different series, we use the technique developed by Pesaran
and Shin (1999, chp 11) and Pesaran et al. (2001). The authors developed a technique to test
the existence of a long-term relationship between variables characterised by a different order of
integration. This is a “bounds test” for a long-term relationship in an Autoregressive Distributed
Lags model (ARDL).
The results of the “bounds test” confirmed the existence of a cointegration relationship between
the variables.12 Consequently, we carry out our estimations by means of the error correction
estimators proposed by Pesaran et al. (1998), namely the Pooled Mean Group (PMG). This
method is based on the dynamic panel specification of an ARDL model. Thus, it is appropriate
in the context of our integrated data of different orders.
4.5. Presentation and discussion of empirical results
4.5.1. Economic growth, institutions and poverty

The results are reported in Table 3.
The PMG model presents both short and long-term dynamics, but the results discussion will
focus on the long-term estimates.
In the six models, the speed of adjustment reflected by the average convergence coefficients
in the short-term relationships are respectively −0.61; −0.59; −0.63; −0.58; −0.58; and −0.62.
They are significant and have the correct (negative) sign. Thereafter, there is indeed an error
12 Results are available upon request.
52
H.K. Kouadio and L.-L Gakpa
Table 3
Pooled Mean Group estimation of the effects of economic growth and institutions on poverty.
Dependent variable: Poverty (Pov)
Variables Institutions
1 2 3 4 5 6
Aggregate indicator of Democracy Bureaucracy Corruption Laws Stability
institutions
Long-term coefficients
Logpibtete 0.22277** 0.216* 0.2265** 0.1835 0.2578* 0.18847
Inv 0.00170 0.0014 0.0017 0.0028** 0.00275** 0.0020*
Tcpop −0.0734*** −0.086*** −0.0678*** −0.0831*** −0.0830*** −0.0457***
53
Credsp 0.0036*** 0.0029** 0.0012 0.0026* 0.0037** 0.0036***

Institutions 0.0250*** 0.0069** 0.0129*** 0.0059 0.0127** 0.0111***
Convergence coefficient
Error correction coefficient (ECM) −0.6154*** −0.590*** −0.6342*** −0.5840*** −0.5803*** −0.6262***
Short-term coefficients

logpibtete −0.1471*** −0.1183** −0.1561*** −0.0731 −0.1446** −0.1175**
Inv −0.0056*** −0.0053*** −0.0048*** −0.00570*** −0.0050*** −0.0057***
Tcpop 0.2828*** 0.2329** 0.3466** 0.30138* 0.2309** 0.2513**
credsp −0.0016 −0.0016 −0.0014 0.00138 −0.0012 −0.0006
Institutions 0.0032 0.0042 −0.0040 −0.0030 −0.0179 0.0030
Constant 2.8767*** 2.714*** 2.9931*** 2.5038*** 2.6286*** 2.8373***
correction model.13 In the long term, the variables evolve in a similar way. These estimated
values inform about the speed of the processes to align to the equilibrium after a short-term
shock. Approximately 61%, 59%, 63%, 58%, 58% and 62% of the disequilibrium of the previous
year’s shocks is corrected after one year.
Several results emerge from the econometric analysis. Looking at the results for the column
of the aggregate indicator of institutional quality (column 1), we find that in the long term, the
coefficient of economic growth is positive and statistically significant. Indeed, it appears that a
one-point increase in economic growth generates an increase in per capita consumption of around
0.22 points. Since per capita consumption expenditure is a true indicator of poverty, this result
explains that economic growth will increase an individual’s capacity to consume to meet his or
her needs, which in this case reduces poverty. Such a result is consistent with those of Adeleye
et al. (2020), Fosu (2017) and Alvaredo and Gasparini (2015).
Results show that in the long term the coefficient associated with the aggregate institutional
quality variable is positive and significant. Indeed, the regressions show that a one-point increase
in the aggregate institutional indicator leads to a 0.025-point increase in household consumption.
This result means that an improvement in the institutional framework in general will be favourable
to poverty reduction through an increase in household consumption per capita. This result allows
us to confirm the contribution of the institutional framework to the improvement of household
living conditions in West Africa. This result corroborates theoretical assumptions confirming that
institutional reforms remain relevant preconditions for poverty reduction in developing countries
such as those in West Africa (Chong and Calderon, 2000a; Tebaldi and Mohan, 2010; Perera
and Lee, 2013). When we disaggregate the indicator of institutional quality by different aspects
of institutions such as democracy, quality of bureaucracy, corruption, law and order, and gov-
ernmental stability, we get plausible and robust results. The results reveal that regardless of the
dimension chosen, there is a positive and statistically significant link between institutions and
poverty reduction. This reveals that an improvement along these institutional dimensions would
be conducive to an increase in per capita household consumption.
With regard to the control variables, results show that the coefficient of the population growth
rate is negative and significant in the long term. In other words, population growth negatively
affects people’s standard of living. Thus, rapid population growth caused by high and sustained
fertility rates is associated with higher poverty rates. High population growth rates in the least
developed countries have been an obstacle to achieving the Millennium Development Goals (UN,
2009). It is therefore important for the region to control its population growth to lift its population
out of poverty. The results also reveal that domestic credit to the private sector has a positive
and statistically significant coefficient in the long term. These results support the fact that the
development of the financial system could contribute strongly to poverty reduction. Indeed, if
the poor have access to financial services, they can increase their productive assets, improve
their productivity and thus increase their income and ultimately reduce their poverty level. Thus,
financial development contributes directly to poverty reduction by increasing the access of the
poor and vulnerable groups to different sources of finance. This result, which shows that the
impact of financial development on poverty is significant, is consistent with those of Honohan
(2004), Kpodar (2006), Boukhatem and Mokrani (2012) and Keho (2017).
13 A highly significant and negative ECM coefficient is evidence of a stable long-term relationship (Banerjee and Newman,
1993).
54
4.5.2. Economic growth, institutions and inequality

The results of the effect of economic growth and institutions in the West African region are
shown in Table 4.
In the six models, the adjustment speed reflected by the average convergence coefficients in the
short-term relationships are −0.27; −0.38; −0.38; −0.35; −0.24 and −0.30 respectively. They
are all significant at 1% and have the correct sign. There is indeed an error correction model.
Estimates of the long-term relationship between economic growth and inequality show mixed
results. While in the equations for the aggregate indicator of institutions, democracy and govern-
ment stability, economic growth seems to be insignificant in explaining income inequality, there
seems to be some negative and statistically significant relationship between economic growth and
income inequality in the equations for bureaucracy, corruption and law and order compliance. In
other words, an improvement in the quality of the latter three institutional dimensions appears to
be a precondition for economic growth to have a reducing effect on income inequality.
Overall, these controversial results are partly consistent with the mixed findings observed in
previous empirical studies on the relationship between economic growth and income inequality.
All coefficients associated with the institutional variables emerge in the long term with coef-
ficients consistent with theoretical expectations. It appears that the existence of democratic
institutions, the alleviation of bureaucratic constraints, the control of corruption, government
stability and the improvement of the institutional environment in general (the aggregate indicator
of institutions) are associated with a reduction in income inequality. Our results, which are in line
with those of Chong and Gradstein (2007), Gyimah-Brempong (2002), and Gyimah-Brempong
and de Camacho (2006), are contrary to those of Chong and Calderon (2000b) and Perera and
Lee (2013), who found that for developing countries, improvements in institutions quality are
associated with an increase in income inequality.
With regard to the control variables, results show that education and foreign direct investment
increase income inequality. Theoretically, education is supposed to improve distribution in any
economy, but there is no strong evidence that this is the case in Africa (Kaulihowa and Adjasi,
2017). Similarly, it is not surprising in line with previous work that FDI as a development policy
instrument has increased income inequality in countries under study. Such a result is consistent
with the dependency theory, which sees FDI as an instrument of dependency and therefore very
harmful to the receiving countries. For the authors of this school, inequality will continue to
grow when the development process of developing countries, such as those in the West African
region, is driven by highly industrialised multinational corporations engaged in capital-intensive
production (Girling, 1973).
4.5.3. Economic growth and the quality of institutions: policy implications

The results of this paper can be summarised as follows: First, economic growth is found
to be an important determinant of increased per capita household final consumption and hence
of poverty reduction. This result thus reaffirms the role of economic growth in the process of
economic development in a context of underdevelopment and therefore supports the widely held
view that economic growth is a necessary condition for achieving poverty reduction. However,
the magnitude of the social impact of economic growth depends on the rate of economic growth
itself as well as the level of income inequality (Keho, 2017). The economic implication of such
a result is that policy makers in the region, should engage in reforms and policies that can make
economic growth more inclusive and pro-poor to reach all vulnerable segments of society. This
could be achieved, as the study results show, by adopting measures to improve access to credit
for the poor, which could be used to create more employment opportunities, for example through
55
Table 4
Pooled Mean Group estimation of the effects of economic growth and institutions on income inequality.
Dependent: inequality (Gini)
Variables Institutions
1 2 3 4 5 6
Aggregate indicator of Democracy Bureaucracy Corruption Law Stability
institutions
Long-term coefficients
logpibtete 0.02325 0.0400 −0.0765*** −0.0748*** −0.0758*** 0.0040
Tsbp 0.0002*** 0.0003*** −0.0004*** −0.0003*** −0.0002 −2.131
IDE 0.0003* −0.00001 0.0005 0.0003 0.0003 0.0002
56
Institutions −0.0050*** −0.002** −0.0016*** −0.0017* −0.0016 −0.0024***

Convergence coefficient
Error correction coeff. −0.3080*** −0.273*** −0.3857*** −0.3813*** −0.3547*** −0.2442***
Short-term coefficients
logpibtete −0.0177 −0.0326 0.014 0.0067 0.0080 −0.0280

Tsbp −0.0003 −0.0001 −0.0003 −0.0002 −0.0004 0.5205***
IDE 0.0008 0.0005 0.0006 0.0006 0.0005 0.0007
Institutions −0.0013 0.0006 −0.0007 0.0016 0.0016 0.0024
Constant 0.2338 0.2816 0.324 0.3599 0.3218 0.3003
Source: Authors’ estimates.

Note: ***, **, * indicate the significance of the coefficients at the 1%, 5% and 10% threshold respectively.
the expansion of entrepreneurial activities, and by controlling population growth in the region,
in the sense that global population growth is largely driven by that of sub-Saharan Africa, and
particularly by West Africa (World Population Prospects, 2019).
Secondly, this study reveals that the overall quality of institutions, democracy, bureaucracy,
control of corruption, law and order and government stability positively affect final household
consumption in the area and thus contribute to significantly reducing the level of poverty. The
economic implication of such results is that if developing countries in general, and West African
countries in particular, are to effectively address the issue of poverty, they should pay particular
attention to cleaning up their institutional frameworks, which have been marked in recent decades
by repeated socio-political and military crises, political instability amplified by terrorism issues,
corruption and general governance problems. From these findings, a consensus is emerging on the
need for deep institutional reforms in developing countries to ensure their economic development
(Rodrik et al., 2004; Acemoglu et al., 2008; Jha and Zhuang, 2014).
Third, our results show that the effect of economic growth on income inequality depends
on country-specific characteristics and whether the country has a better judicial and regulatory
system, a better corruption control system and a better bureaucratic quality, which will allow them
to exploit the spillovers of economic growth in terms of income distribution. Indeed, growth has
a significant effect on income inequality when the quality of these three institutions is better. The
policy implications of such results are that an improvement in the quality of bureaucracy, laws
and regulations, and control of corruption are fundamental to facilitating income distribution. In
other words, an increase in the level of economic growth and an improvement in the quality of
these institutions seem to have long-term benefits on the inequality level of the region. Therefore,
efforts to ease bureaucratic constraints with a view to increasing the efficiency and speed of
allocation of public resources to the poor, the promotion of a judicial and regulatory framework
that provides more guarantees and opportunities for the disadvantaged, and the implementation
of anti-corruption strategies to increase the effectiveness and efficiency of social service delivery
to the poor, should be intensified and strengthened to enable countries of the region to benefit
from economic growth. This is because corruption can, for example, change the composition of
social spending in favour of the rich at the expense of the poor, leading to increased inequality
(Andres and Ramlogan-Dobson, 2011).
Finally, our results show that good quality institutions have a role to play in reducing inequali-
ties in the West African region. Indeed, as rules of the game, they shape the behaviour of economic
agents (North, 1990) and therefore help explain the economic performance of countries. When
these rules are constantly changing or not respected, when the discretionary power of the rulers
is unlimited, when there are no real democratic institutions, when the quality of the bureaucracy
is poor, when corruption is high and the enforcement of laws and rules is weak, and finally,
when political stability is not guaranteed, as in the study area, the institutional environment is
likely to exacerbate income inequalities. Furthermore, by also defining the incentive and sanction
framework of society, providing information on what actions are encouraged and discouraged
and the likely benefits and costs associated with such actions, improving the quality of institu-
tions can increase the return on investment in education, which motivates individuals to invest
more in their education (Ouedraogo et al., 2021). However, education, by modifying the struc-
ture of qualifications, ultimately modifies the distribution of income. In view of all the above,
weak institutions can have deleterious effects on income inequality (Chong and Gradstein, 2007;
Chong and Calderon, 2000b). The main economic implication that emerges from these results is
that governments in the region should strengthen their governance structures through reforms to
57
improve their institutional frameworks to effectively address income inequality in the sub-region.
Improving the quality of institutions can bring about important changes in society in general.
5. Conclusion
In this paper, we investigate the effect of economic growth and institutional quality on inequality
and poverty reduction in West Africa. To control for potential heterogeneity and the unit root pro-
cess, we use the PMG estimation technique which accounts for heterogeneous and non-stationary
panels.
The results of the study show, firstly, that economic growth is accompanied by a reduction
in poverty levels. Furthermore, the study reveals that economic growth can help to significantly
reduce income inequality in the West African region if countries in the region have a better judicial
and regulatory system, a better system for controlling corruption, and if they reduce bureaucratic
constraints. Second, the institutional environment in general and especially the quality of certain
institutions, such as democracy, quality of the bureaucracy, law and order, control of corruption
and governmental stability, were found to be important determinants of the reduction of income
inequality and poverty in West Africa.
In light of these findings, a number of policy implications can be formulated. First, it is
important to agree that the institutional environment should not be neglected if policy-makers are
to effectively address inequality and poverty. The various reforms undertaken in the economic
sphere have not always been able to significantly reduce poverty and inequality, despite the good
economic performance of the countries in this region in terms of economic growth. For this to
happen, the political authorities must ensure the quality of institutions to significantly reduce
poverty and income inequality. This could be achieved, as the results of our study show, by
strengthening democratic institutions, fighting corruption, ensuring compliance with laws and
regulations, improving the quality of bureaucracy and enhancing political stability. These are
the many challenges that policymakers need to address to better capitalise on the high rates of
economic growth that the region has experienced over the past two decades.
Appendix A
58
Table A1
Correlation matrix between variables in model 1.
Pov LogPibtete Demo BurQ Corr Loi & ordre StabG INSQ Tsbp Inv tcpop credsp
Pov 1
LogPibtete −0.4670* 1
Demo 0.0187 0.2141* 1
BurQ −0.0566 0.3207* 0.1510* 1
Corr 0.0639 −0.0190 −0.0714 0.3732* 1
Loi & ordre 0.0663 −0.0888 0.2744* 0.1365* 0.3497* 1
59
StabG 0.0978 0.0610 0.2489* −0.1745* −0.0372 0.2549* 1

INSQ 0.0564 0.2190* 0.6133* 0.5778* 0.5013* 0.6465* 0.4678* 1
Tsbp −0.0890 0.4097* 0.1612* −0.0968 −0.3654* −0.0114 0.2925* 0.0214 1
Inv −0.5237* 0.2623* −0.0883 −0.0039 −0.1908* −0.3332* −0.0779 −0.2151* 0.2187* 1
Tcpop −0.1544* 0.0798 0.2789* 0.1988* 0.2798* 0.0617 0.3441* −0.1010 −0.0210 1

Credsp −0.2049* 0.3465* −0.0275 0.0230 0.0328 0.0833 −0.1333* −0.0187 0.2155* 0.0393 0.1890* 1
Note: * denotes 5% significance level.
Table A2
Correlation matrix between variables in model 2.
Gini LogPibtete Demo BurQ Corr Loi & StabG INSQ Tsbp ide
ordre
Gini 1
LogPibtete −0.3308* 1
Demo −0.2390* 0.2141* 1
BurQ −0.0254 0.3207* 0.1510* 1
Corr 0.3330* −0.0190 −0.0714 0.3732* 1
Loi & ordre 0.2317* −0.0888 0.2744* 0.1365* 0.3497* 1
StabG −0.2179* 0.0610 0.2489* −0.1745* −0.0372 0.2549* 1
INSQ −0.0304 0.2190* 0.6133* 0.5778* 0.5013* 0.6465* 0.4678* 1
Tsbp −0.4714* 0.4097* 0.1612* −0.0968 −0.3654* −0.0114 0.2925* 0.0214 1
IDE −0.2120* 0.0391 0.2427* −0.0570 −0.1417* 0.0747 0.2545* 0.1496* 0.3584* 1
Note: * denotes 5% significance level.
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Dogo Bis P.006107 DOG RP08 EcoFi Note D'analyse Macroéconomique

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Analyse Economique, Financière,

Fiscale et Macro de l’aménagement

Ministère de l’Energie du Bénin

Avec l’expertise reconnue de

Client : Ministère de l’Energie du Bénin

Avec l’expertise reconnue de

Note d'analyse macroéconomique

Client : Tractebel et Ministère de l’énergie du Bénin

B 09/11/23 J. Domagalski E. Bessan L. Aljounaidi

A 26/10/23 Final J. Domagalski L. Aljounaidi

Rev JJ/MM/AA Statut Redige par Revu Par Emis Par

Liste des encadrés

II. Impact macro-économique

Population, total : 13,352,864

Note d'analyse macroéconomique 1

A. Analyse d’impact macroéconomique existante

La méthodologie du Ministère de l'Eau et des Mines de la République du Bénin combine trois

B. Approche proposée pour la présente étude

stratégique et technico-économique, Rapport Final (Aout, 2017)

Note d'analyse macroéconomique 2

B.1. Impact sur la croissance économique

B.1.2. Phase d’exploitation

Note d'analyse macroéconomique 3

B.2. Impact sur l'emploi

B.3. Impact sur la balance commerciale

B.3.2. Balance commerciale de produits alimentaires

Note d'analyse macroéconomique 4

B.4. Impact sur la réduction de la pauvreté

10 Institut national de la statistique et de l'analyse économique, INStaD/DCNSE-DDD, décembre 2022 :

Note d'analyse macroéconomique 5

C. Calculs et résultats de l’approche proposée

C.1. Impact sur la croissance économique

Mesures environnementales et sociales 23 Mds FCFA

Infrastructures gravitaires d'irrigation 35 Mds FCFA

Infrastructures routières 23 Mds FCFA

Total 304 Mds FCFA

Note d'analyse macroéconomique 6

C.1.2. Phase d’exploitation

Phase de Cinq premières années Au-delà des cinq

Impact sur la croissance +0.74% +4.2% +3.4%

C.2. Impact sur l'emploi

Note d'analyse macroéconomique 7

Au cours de l'exploitation, le projet générera 500,000 nouveaux emplois supplémentaires,

C.3. Impact sur la balance commerciale

C.3.2. Produits alimentaires

C.3.3. Impact total sur la balance commerciale

Note d'analyse macroéconomique 8

C.4. Impact sur la réduction de la pauvreté

D. Comparaison des résultats et conclusion

Analyse Approche proposée

Impact sur la croissance économique

Phase de construction (2024-2028) 1.4% 0.74%

Cinq premières années de la phase 1.6% 4.2%

Impact sur l’emploi (directs et indirects)

Phase de construction (2024-2028) 178,000 +72,818

Phase d’exploitation 211,703 +574,307

Baisse du taux de pauvreté

Phase de construction (2024-2028) 1.3% 1.17% (intervalle de confiance

Cinq premières années de la phase 1.5% 6.66% (intervalle de confiance

Impact sur la balance commerciale

Première année de la phase Pas considéré +38.6 Mds FCFA

Note d'analyse macroéconomique 9

Note d'analyse macroéconomique 10

Credsp 0.0036* 0.0029 0.0012 0.0026* 0.0037 0.0036*