This paper focuses on several dimensions of urban infrastructure finance: finance for major infrastructure improvements in major economic centres; finance for expansion of basic municipal services in secondary cities and towns; and intergovernmental systems for financing investments with impacts beyond jurisdictional limits. It includes discussions of “efficient financing” for infrastructure, the role of urban governments, and case studies of successful and unsuccessful municipal finance.

Although data are often limited, the extent of the infrastructure “gap” – or the amount of additional infrastructure spending that is needed to provide basic services – is enormous. Municipalities need to finance large-scale infrastructure, in part because of an increasing emphasis on fiscal decentralization and political democratization in many areas, and because of globalization and the financial liberalization that often accompany it. But this need is also because of growing demands for urban services, as urbanization continues in major cities around the world. Improved urban infrastructure, for water supply, sanitation, urban transport and solid waste management is widely considered as essential in encouraging and facilitating economic growth. Evidence indicates that those countries most successful in sustaining high growth supported their cities with transformative investments to improve urban infrastructure that could accommodate rapid population growth in major economic centres. This evidence suggests that infrastructure has a strong “supply-side” orientation and, in practice, it is the effects of infrastructure on “supply” that are most often emphasized. There is also a strong “demand-side” aspect: individuals and businesses value the services that flow from the stock of infrastructure facilities and these demands should be (but are often not) considered in determining the appropriate level of infrastructure investment. In addition to the potential supply-and-demand-side impacts on economic growth, the services of infrastructure also play a significant role in the distribution of income. The paper ends with a discussion of gaps in our understanding, “best practices” and an agenda for research.