This chapter discusses the economic importance of infrastructure, which is required
to satisfy the basic needs of suppliers and consumers. High quality service may
require even more dependable (reliable) technology. Sustainable economic growth
can only be achieved if quality infrastructure services can be provided at reasonable
cost. This is certainly the challenge of many countries to improve the quality of
services and the delivery system through an adequate infrastructure investment. The
institutions, the regulations, and the enforcing laws constitute the infrastructure of an
economy, and determine to what extent individuals are prepared to invest in capital,
to develop skills, and adopt technology, associated with long-term economic success. Countries where the government provides the proper environment conducive to
production are very dynamic and successful. Countries where the government uses
its power to allow diversion are certainly less successful.
2.1 Introduction
2.1.1 Why Do We Need Infrastructure?
Social overhead capital is a term used to denote funds which are invested in basic
services (e.g. water, roads), essential to the functioning of primary, secondary and
tertiary productive activities. Providing social overhead capital enables economic
development to occur because this creates favourable circumstances capable of
exerting favourable effects on the flow of income in a country. Amenities improving
the standard of living, services which enhance productivity and increase production
comprise the infrastructure which contributes to the country’s development in
different ways.
1. Infrastructure services help in reducing the input costs in production processes,
thus raising the profits from production. This allows more output, higher income,
and more employment.
2. The productivity of other factors (such as labour, capital) are also increased with
practically no further or little expenditure. These infrastructure services are often
called an ‘unpaid’ factor of production.
As described in Chap. 1, infrastructure covers a wide range of services, which
help society or impact the operation of organisations. Each infrastructural service
(or sometimes even sub-sectors) is different from another due to (1) its administration (2) its operational structure, (3) the legal framework regulating its functioning,
(4) the type of technology used and (5) the extent of commercialisation. Furthermore, while some services can be considered as private goods
(e.g. telecommunications) on a strictly commercial basis, others are public goods
(e.g. roads, national defence), with an expectation to be fully provided by the
Government or at least part-subsidised.
Economic development can only proceed in a country when adequate infrastructure facilities are made available, because they help in coping with population
34
2 Infrastructure and Economic Growth
to satisfy the basic needs of suppliers and consumers. High quality service may
require even more dependable (reliable) technology. Sustainable economic growth
can only be achieved if quality infrastructure services can be provided at reasonable
cost. This is certainly the challenge of many countries to improve the quality of
services and the delivery system through an adequate infrastructure investment. The
institutions, the regulations, and the enforcing laws constitute the infrastructure of an
economy, and determine to what extent individuals are prepared to invest in capital,
to develop skills, and adopt technology, associated with long-term economic success. Countries where the government provides the proper environment conducive to
production are very dynamic and successful. Countries where the government uses
its power to allow diversion are certainly less successful.
2.1 Introduction
2.1.1 Why Do We Need Infrastructure?
Social overhead capital is a term used to denote funds which are invested in basic
services (e.g. water, roads), essential to the functioning of primary, secondary and
tertiary productive activities. Providing social overhead capital enables economic
development to occur because this creates favourable circumstances capable of
exerting favourable effects on the flow of income in a country. Amenities improving
the standard of living, services which enhance productivity and increase production
comprise the infrastructure which contributes to the country’s development in
different ways.
1. Infrastructure services help in reducing the input costs in production processes,
thus raising the profits from production. This allows more output, higher income,
and more employment.
2. The productivity of other factors (such as labour, capital) are also increased with
practically no further or little expenditure. These infrastructure services are often
called an ‘unpaid’ factor of production.
As described in Chap. 1, infrastructure covers a wide range of services, which
help society or impact the operation of organisations. Each infrastructural service
(or sometimes even sub-sectors) is different from another due to (1) its administration (2) its operational structure, (3) the legal framework regulating its functioning,
(4) the type of technology used and (5) the extent of commercialisation. Furthermore, while some services can be considered as private goods
(e.g. telecommunications) on a strictly commercial basis, others are public goods
(e.g. roads, national defence), with an expectation to be fully provided by the
Government or at least part-subsidised.
Economic development can only proceed in a country when adequate infrastructure facilities are made available, because they help in coping with population
34
2 Infrastructure and Economic Growth