Stop the presses!

Maladjusted has just received breaking news that's sure to overturn everything we know about market efficiency: privately operated airports in Latin America are not more efficient than publicly operated ones! According to a study published by the World Bank! THIS. CHANGES. EVERYTHING.

That's right, the authors of the new World Bank working paper, Sergio Perelman and Tomas Serebrisky, set out to address a seriously urgent shortcoming in the obscure airport efficiency literature (usually filed in academic journals under the "who the fuck cares?" category). In their words:

"To the best extent of our knowledge, there has not been any study that computes the efficiency and performance of a representative sample of airports in Latin America. The main objective of this paper is to fill this gap in the literature."

But just imagine their surprise when they realized that they had accidentally stumbled upon research that is vaguely interesting to more than three other people who study the subject. From the report:

"Probably the most unexpected result is that privately operated airports in Latin America have not outperformed publicly operated airports. Given the wide variety of private participation schemes used by Latin American countries, this result should lead to more detailed and case by case research to assess the effects of private participation on airport performance. In addition, future research should also assess the impact of private sector participation on the financial efficiency of LAC airports as well as on the quality of service they deliver."

Well consider me among those whose worldview has just been shattered. Snark aside, I was pleasantly surprised that what seemed like an otherwise trivial and pointlessly obscure research brief (measured against other World Bank research papers, which are usually in a triviality league of their own) turned out to be modestly insightful.

The Count: Latin America's infrastructure gap

2...

...is how many percentage points Latin America's average annual growth rate would increase if it achieved the same levels of infrastructure observed in other middle-income countries. Or at least according to a new policy paper by the World Bank.

According to the report, the retreat of the State in Latin America during the 1980s and 1990s has resulted in a significant "infrastructure gap" in relation to other middle-income and newly industrialized countries. As the region rushed to privatize public entities and downsize the State, public investment in infrastructure dropped dramatically. At the same time, increased private participation in infrastructure development became the norm.

And in Latin America, private participation in infrastructure during the 1990s was larger than in any other region of the world. As can be seen below, there was a boom in private infrastructure investment between 1990 and 1998. Investment commitments increased from $10 billion in 1990 to more than $70 billion in 1998. These then crashed after 1998 in the wake of the Asian crisis and failed to recover during the early 2000s (due in part to Argentina's crisis and the completion of initial investments related to utility company privatizations).

[Private participation in infrastructure: investment commitments, millions of dollars]

But it seems that, despite this huge investment boom, when it came to infrastructure the private sector simply wasn't up to the task. To quote the report:

"Because private sector participation was not sufficient to offset the contraction of Latin America's public infrastructure spending, the ensuing fall in total spending resulted in a slowdown in infrastructure development in the region, and a widening gap vis-a-vis other world regions in terms of both infrastructure and growth."

Taking into account access to telecommunications, roads and electricity, the authors of the report put together an "infrastructure quantity" index for all of Latin America. The results: Latin America as a whole gets a low score of 0.88, compared to 1.02 for all other middle-income countries, 1.20 for East Asia and 2.09 for industrial countries.

Within the region, Central America is worse off, scoring 0.57. Chile, Venezuela and Brazil, in order, score the highest, with respective scores of 1.57, 1.37 and 1.12. These are well above the middle-income average and in the case of Chile and Venezuela, above the East Asia average--but nevertheless still far from the industrial average.

The gap is also quite large in terms of infrastructure quality, which is based on a series of polls:

[Overall infrastructure quality]

And now to the punch line. The result of all this is that Latin America would have supposedly been enjoying higher growth rates if it had levels of infrastructure on par with other middle income countries. To estimate this, the paper runs several standard growth regressions but incorporating its infrastructure quantity and quality indexes. It then takes the estimated impact of infrastructure on growth rates and combines it with the size of the gap.

The result is that on average, as the big two above says, annual growth rates would be 2 percentage points higher in Latin America without the infrastructure gap, with most of the increase due to higher quantity rather than quality. Significantly, countries in the Andean region would benefit the most from closing the infrastructure gap, with average growth rates 3.1 percentage points higher.

The Count

24...

...is the average number of years it'll take Latin American and Caribbean countries to achieve universal access to the most basic human services. Or at least according to the World Bank's 2010 Human Opportunity Index Report.

That's right, the new Human Opportunity Index report is out and it's pretty safe to say that it's a development-minded nerd's wet dream. The HOI is essentially a measure of access to basic services, including education, housing, water and electricity, taking into account how equitably or fairly these are distributed. Or, in the words of the World Bank's poverty reduction director, Marcelo Giugale:

"What we are measuring here is: are the doors of development open to all before the game starts?"

Countries get positive scores for higher coverage rates but get penalized for the inequality of coverage. If a country has a decent level of access to education but the bulk of those excluded belong to a particular marginalized social group, the country would earn a lower HOI score than a country with a similar level of access but more equitable distribution.

As can be seen below, the countries in the region with the top HOI are, in order, Chile (95), Uruguay (92), Mexico (90), Costa Rica (89) and Venezuela (89). Honduras is at the complete opposite end of the spectrum, scoring a depressing score of 51.

[2010 Human Opportunity Index]

What's more, most countries have seen their HOI score grow significantly. Chile, for instance, went from 83 in 1996 t0 a score of 95 this year. The country with the fastest growing HOI, quite surprisingly, was Mexico, going from a low 65 in 1996 to its impressive 90 this year, an annual rate of 1.74.

Now this takes us to this week's count, 24, at the top. The average annual HOI growth rate for all of Latin America and the Caribbean is .99. At this rate it would take the region 24 years to achieve universal coverage of all the basic necessities, or an HOI score of 100. Put this way, the region still has a long way to go, despite all it's great progress lately (of course, this is based on the rather simple assumption that coverage increases linearly--at a steady rate).

But there's more sobering news in the report. The gap between rural and urban areas remains very large. What's interesting though is that this gap is smaller in countries with higher national HOI scores, suggesting the existence of what one might call an "opportunity spillover." Another thing to keep in mind is that Latin America and the Caribbean are still far from HOI levels observed in developed countries (with the exception of access to uncrowded living conditions in a few cases).

Also, the report decomposes the changes in the national HOI score into "compositional" and "scale" effects--that is, into how much of the change is due to an overall increase in coverage or to a fairer distribution of coverage. To quote the report:

"For all their efforts, LAC governments have, in general, not made much progress improving equity. Only a tenth of the average improvement in HOI is attributable to a fairer allocation of services, that is, to better social targeting of public expenditures."

In other words, most of the improvement in the HOI score is due to increases in the number of people covered, not the fairness of coverage. Moreover, this type of change can be in large part attributed to migration from rural to urban centers.