Do You Measure GDP Contribution In Portfolio Management Model?

Investment on infrastructure is a critical factor for country economic health and wealth. It enables the private sector and individuals to invest and produce goods and services more efficiently. Infrastructure spending by the government or in partnership with private sector is generally, expected to result in higher economic output in the short term by stimulating demand and in the long term by increasing overall productivity.

However, there are many factors involved to understand and calculate the infrastructure contribution to the overall country GDP. It becomes more difficult to calculate it for each project or for each dollar spent. In short, it is not that sample to measure the impact of each project on GDP. Although, some are claiming for every dollar spent, it generate 5 dollars contribution to the GDP on long term.

So how the policymakers assess the impact of public investment projects? Can we calculate a model how much an infrastructure project add to the GDP? Which projects are most beneficial in the long-term? How do large, expensive projects influence the debt dynamics and macroeconomic stability? While there is a need for large infrastructure investment, which cover short term planning, it is often difficult for policymakers to determine the most beneficial projects on long term planning.

Any suggested model should concentrate on the major projects above certain threshold; however, monitoring its applicability to small projects might be recommended too as part of program and portfolio management.

Moreover, any suggested model should be based on accurate data input (if you don’t have a trusted center data, start now to build it, it takes years to have it). Not just that, the criteria should be the same when we evaluate all projects individually as a dynamic portfolio analysis. This criteria vary from country to another (rich to poor countries), from project type to another (for example, education to highways), normal need to crisis response (strategic planning to disaster response) and many.

This filed of creating a model to measure the impact of infrastructure projects on GDP is still under debate and we still need to do more researches and experiences trials on this regards. Therefore, government portfolio management and spending planning should consider the input of it to the overall GDP in a way or another.

Finally, an article published in the world bank last month highlighted that a study finds that countries that do not invest in road safety could miss out on anywhere between 7 and 22% in potential per capita GDP growth over a 24-year period. This requires policymakers to prioritize proven investments in road safety. The cost of inaction is more than 1.25 million deaths a year globally, diminished productivity and reduced growth prospects””. This add another level to complexity on the project quality delivery evaluation and that cutting budget corners to deliver fast (which usually happen on the last stage before engaging market), reverse the calculated benefits during the previous stages. So be careful of such decisions. 

Please share with us your experience and knowledge on the above in your country, if any.

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