Introduction

Investment in public infrastructure is widely recognized as being an essential component of economic development and growth. Services associated with the use of infrastructure account for roughly 7 to 9 percent of GDP in lowand middle-income countries. Infrastructure in these countries typically represents about 20 percent of total investment and 40 to 60 percent of public investment. The stock of physical infrastructure is thus an important input in the production process of such economies, raising the efficiency and productivity of the private sector, and thereby providing a crucial channel for growth, distribution of output, and ultimately higher living standards.

The significance of infrastructure has assumed a central role in the context of the expansion of the European Union (EU). In several instances, the per capita level of GDP of members acceding to the Union has been below the EU average. For example, in 1988, the per capita GDPs (in purchasing power parity) of Greece, Ireland, and Portugal were only 54.4, 64.6, and 53.8 percent, respectively, of the EU average. Moreover, these countries were also experiencing low growth rates that even exhibited tendencies to decline. As a consequence, the EU introduced pre-accession aid programs to assist these and other potential member nations in their transition into the Union. This process of “catching up” began in 1989 with unilateral capital transfers from the EU through its Structural Funds Program, and subsequent programs were introduced in 1993 and 2000.