Public Investment for Sustainable Development in Chile: Building on the National Investment System

Sep 2016
The Chilean National Investment System (Sistema Nacional de Inversiones, or SNI), is a model of consistent and transparent investment appraisal. However, the investment outcomes have exacerbated spatial and interpersonal inequalities, increasing informality, congestion, and pollution in metropolitan areas. This paper argues that the project selection methods used do not account for inequality aversion, congestion, and externalities. The manner in which funds are allocated to regions also has an impact on the outcomes. Using a generalization of the theory of reform and shadow prices by Drèze and Stern (1987), this paper presents a method to generate economy-wide shadow prices that can be linked to a desirable green growth strategy, as well as price and tax reforms to generate sustainable and inclusive investment outcomes. This can build on the strengths of the SNI method and investment management. The analysis includes a range of alternative estimates for critical economy-wide accounting ratios that could allow for a better linkage with sustainable growth.