Too much of a good thing?

We usually believe infrastructure investment is economically positive and stimulates growth. So does China, which has based its development model on heavy infrastructure investment. Oxford University, however, has just published a study stating the opposite.

Oxford University’s Saïd Business School analysed 95 large Chinese road and rail transport projects and 806 transport projects built in rich democracies in its new study. 

“From our sample, the evidence suggests that for over half of the infrastructure investments in China made in the last three decades, the costs are larger than the benefits they generate, which means the projects destroy economic value instead of generating it,” commented Atif Ansar, one of the authors of the study. 

It found that actual infrastructure construction costs in China are on average 30.6 percent higher than the estimated costs, with three quarters of transport projects over budget.

Ouch. But there’s more: “It is a myth that China grew thanks largely to heavy infrastructure investment. It grew due to bold economic liberalisation and institutional reforms, and this growth is now threatened by over-investment in low-grade infrastructure,” said Ansar. 

For those emerging markets eyeing China as a model of economic development, maybe go a little bit easier on the infrastructure development, please…