1. Ensure it meets a need
This can be done by identifying current and future needs. The former could be by analysing usage data, or through surveys. However, future needs are generally a more important consideration and hard to estimate. A standard approach is to project forward demand, but there is some evidence that these projections could be subject to optimism bias e.g. Flyvbjerg (2008).2 Ideally, a range of scenarios including optimistic and pessimistic cases should supplement the base case analysis.
2. Ensure consistency with other objectives
Infrastructure projects should fit with the government’s broader policy agenda, including social and environmental as well as economic goals. For example, in the UK, the Government’s commitment to invest £13 billion in transport in the North of England is consistent with its objective to develop a ‘Northern Powerhouse’. Or in the case of Canada, building stronger communities and cities by renewing attention on public transit and green infrastructure.
3. Ensure the numbers add up
Successful infrastructure projects need to be financially viable. This includes making sure funds are available to finance the project, but at present this does not seem like a major constraint as Figure 6 shows that long-term government bond yields are trading well below their historical average rates across the G7. For governments with a relatively low net debt position and healthy public finances (e.g. Germany and Canada), embarking on an infrastructure-led programme seems like a sensible way to boost aggregate demand and long-term supply capacity. But even where budget deficits remain relatively high, as in the UK, there could be a case for prioritising infrastructure investment over current spending.
4. Ensure it will benefit the wider economy
all of the potential impacts of an infrastructure project should be considered. The assessment should factor in both the long-term effects as well as the direct and indirect impacts relative to a scenario where the project does not go ahead.