Economic Gain and Loss from Public Infrastructure Investment

ABSTRACT The purpose of this study is to analyze the effects of transportation investment on the Korean economy using the dynamic Computable General Equilibrium model. The result of the counterfactual analysis shows that infrastructure investment policy has the advantage of economic growth, but the disadvantage of price inflation. The elasticities of infrastructure investment with respect to GDP, export, private utility, and inflation depend on institutional restrictions on the domestic inflow of foreign capital and financing alternatives for infrastructure projects. The growth effect of transportation investment would be maximized if regulations on inflow of foreign capital to the private sector were lifted. On the other hand, the effect of transportation investment on inflation would be minimized if transportation investment expenditure were completely financed by tax revenues.