Public investment and infrastructure planning: A policy modelling approach for the Turkish investment sector

Attempts to guide public policy on infrastructure are hampered by two problems. First is the failure of competing economic paradigms to develop satisfactory methods of accounting for the economic impact of infrastructure. Second is the cumbersome system of classifying infrastructure categories because infrastructure is used as an umbrella term for a collection of diverse private and public systems. This study aims at answering policy questions concerning the optimal levels of infrastructure and the timing and scope of development, in a framework consistent with the multidisciplinary nature of the infrastructure problem. In addition, it evaluates ex-post the Turkish planning experience between the years 1963 and 1985 within an investment sector-specific macroeconometric model. A seven-category infrastructure classification scheme is proposed to allow infrastructure matrices to be constructed for use as planning technologies, and the necessary capital stock variables to be defined for studying the economic impact of infrastructure. Within the Input-Output framework, a historical infrastructure matrix is proposed, using the seven-category infrastructure scheme on the basis of sector of origin versus destination, to satisfy the question of how much and what kind of infrastructure is needed in an economy for optimal growth. Similarly, a set of needs assessment matrices is suggested for calibrating the historical matrix in order to take into account factors such as past neglect or expected future demand for infrastructure in the economy. These in turn allow for the formulating of various planning scenarios for decision making. To answer the question of the optimal timing and scope of development, the Input-Output model is integrated into the macroeconomic model by endogenizing private investment. The model performance results of the Turkish case show a high degree of complementarity between public investment in infrastructure and private capital accumulation. The policy simulation results suggest that expansionary public policy in the case of infrastructure has beneficial effects on the economy. However, in the case of state economic enterprises the converse is true.