Issue of benefit-cost incidence

Notwithstanding the aggregate benefits expected from the development of cross-border infrastructure, the benefits and costs of such investments are unlikely to accrue equitably across involved countries. This is particularly likely in instances like the GMS where the countries involved are disparate in economic size and in their level of economic development. Problems in the incidence of benefits and costs of trade liberalization and trade integration across large and small economies are well discussed in the trade literature.⁴ This literature also highlights the prominence of asymmetries in bargaining power and inequities in distribution of trade benefits when trade integration is pursued between large and small economies.

The greater complexity of cross-border infrastructure projects that require coordination between multiple bureaucracies, compensation/cost-sharing between affected countries, and synchronizing project work across different countries and contractors can make them riskier than projects based in a single country. Participating countries face different political and economic circumstances and cycles, and often have starkly contrasting abilities to negotiate and implement projects (Ferroni, 2002). The task of correctly accounting for the economic and financial benefits and costs of cross-border infrastructure projects is also made correspondingly more difficult by these project characteristics.⁵ Asymmetries in the benefit-cost incidence across countries must be delineated and addressed in the design and implementation of investments in cross-border transport infrastructure, such as those currently underway in the GMS.

For example, in the case of the North-South Economic Corridor linking Kunming (Yunnan Province of the People’s Republic of China) to Chiang Rai (Thailand), much of the road runs through northern Lao PDR. However, the road is expected to bring greater economic benefits to Thailand and Yunnan Province through enhanced trade between these two large economies with their large industrial and agricultural sectors, and is expected to have relatively little effect on Laotian trade. However, many of the environmental and social externalities associated with the road’s construction and operation (e.g., greater difficulty of travel while the road is under construction, encroachment on fragile forests and indigenous communities, risks of vehicle collisions to people and animals living along the road, and increased transmission of disease associated with anticipated increase in transit visitors), will likely be borne by stakeholders in Lao PDR. Accordingly, it is not surprising that the Chinese and Thai governments have joined ADB in financing the Lao portion of the North-South Economic Corridor’s road upgrading at concessional terms to the Lao government and the project proposal includes components to provide technical assistance to mitigate the effects of anticipated adverse environmental and social impacts of the road.

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