Effects of Infrastructure on Private Investment in Brazil

Abstract

Abstract This paper presents an analysis of how sector-specific infrastructure shocks affected private investment in Brazil between 1970 and 2016. We estimate a structural VAR with two identification schemes - recursive Cholesky ordering and sign restrictions - after standard specification checks, Johansen cointegration tests, and stability diagnostics. Impulse-response functions reveal persistent crowding-in effects in sanitation and electricity, whereas transport and telecommunications display smaller, more delayed effects. The FEVD confirms this ranking at medium horizons, with sanitation accounting for the largest incremental share of private-investment variance, followed by electricity; transport and telecom contribute modestly. These findings are consistent with Brazilian evidence and Hirschman’s linkage hypothesis, indicating that sanitation and electricity investments activate direct and indirect connections that foster private capital formation. From an economic policy perspective, the results suggest prioritizing ready-to-implement projects in the sanitation and energy sectors, as well as strengthening intersectoral coordination to reduce bottlenecks in transportation and modernize telecommunications networks.