growth, trade expansion and diversifying production. Thus, infrastructure improves
environmental conditions, and helps to eradicate or reduce poverty.
The composition of infrastructure changes with income levels. Samli (2011)
argues that lack of capital, wasted capital, lack of understanding and discrimination
act as infrastructure inhibitors in developing countries. These countries will invest in
water, irrigation, transport, etc. In contrast, in the industrialised world, the same role
is played by expensive infrastructure, reduced infrastructure budget, not seeing the
relation between infrastructure and economic development and, lastly, many countries are investing only on the short run trade related infrastructures. Telecommunications and power have a bigger share in high-income countries.
As infrastructure services constitute inputs in many productive processes or
activities in agriculture, industry and services (transport, electricity, water, telecommunications, etc), their eventual low cost decreases the cost of production, thereby
raising the production profitability. One method to assess whether investment in
infrastructure brings any return is to measure or estimate any cost reduction to users.
For example, a manufacturing company might be producing its electricity through a
private generator. Does its cost of electricity per unit consumed, decrease when the
electricity is provided from a generator supplying several such users? Apart from
economies of scale, there might be better quality of service or higher reliability.
If infrastructure services are inefficient (e.g. it takes 4 hours for a 20 km journey
across a badly maintained road), firms are forced to seek higher-cost alternatives
(e.g. use a longer but smoother road, generate their own electricity to alleviate
frequent power cuts) that induce detrimental impacts on profits and production
levels. Unreliability (see Chap. 9), such as inadequate water pressure, frequent
power cuts, etc.), and inadequate access to (or absence of) infrastructure services
may result in existing productive capacity being under-used. This puts constraints in
the short term production efficiency and long term growth in output. Consumer firms
may find it better to invest in alternatives such as boreholes, standby generators,
which unfortunately, increase capital costs. Consequences may include ripple
effects, the creation of bottleneck production and/or over-production capacity in
other sectors. Lack of maintenance facilities and poor quality of service provision
thus shift the burden of inadequate or insufficient infrastructure provision (here, to
the users themselves) – increasing total production costs – thereby producing less
economically efficient outcomes.
At Budapest, the capital of Hungary, the first permanent bridge built across the
river Danube, was opened in 1849. The Széchenyi Chain Bridge is a suspension
bridge that links the western and eastern sides, namely Buda and Pest, on the two
(right and left banks, respectively) of River Danube. It immediately boosted the
country’s economic, social and cultural life. (See Photo 2.1).
2.1.2 Economic Roles of Government
Usually, the government has four main economic roles, namely:
2.1 Introduction
35
environmental conditions, and helps to eradicate or reduce poverty.
The composition of infrastructure changes with income levels. Samli (2011)
argues that lack of capital, wasted capital, lack of understanding and discrimination
act as infrastructure inhibitors in developing countries. These countries will invest in
water, irrigation, transport, etc. In contrast, in the industrialised world, the same role
is played by expensive infrastructure, reduced infrastructure budget, not seeing the
relation between infrastructure and economic development and, lastly, many countries are investing only on the short run trade related infrastructures. Telecommunications and power have a bigger share in high-income countries.
As infrastructure services constitute inputs in many productive processes or
activities in agriculture, industry and services (transport, electricity, water, telecommunications, etc), their eventual low cost decreases the cost of production, thereby
raising the production profitability. One method to assess whether investment in
infrastructure brings any return is to measure or estimate any cost reduction to users.
For example, a manufacturing company might be producing its electricity through a
private generator. Does its cost of electricity per unit consumed, decrease when the
electricity is provided from a generator supplying several such users? Apart from
economies of scale, there might be better quality of service or higher reliability.
If infrastructure services are inefficient (e.g. it takes 4 hours for a 20 km journey
across a badly maintained road), firms are forced to seek higher-cost alternatives
(e.g. use a longer but smoother road, generate their own electricity to alleviate
frequent power cuts) that induce detrimental impacts on profits and production
levels. Unreliability (see Chap. 9), such as inadequate water pressure, frequent
power cuts, etc.), and inadequate access to (or absence of) infrastructure services
may result in existing productive capacity being under-used. This puts constraints in
the short term production efficiency and long term growth in output. Consumer firms
may find it better to invest in alternatives such as boreholes, standby generators,
which unfortunately, increase capital costs. Consequences may include ripple
effects, the creation of bottleneck production and/or over-production capacity in
other sectors. Lack of maintenance facilities and poor quality of service provision
thus shift the burden of inadequate or insufficient infrastructure provision (here, to
the users themselves) – increasing total production costs – thereby producing less
economically efficient outcomes.
At Budapest, the capital of Hungary, the first permanent bridge built across the
river Danube, was opened in 1849. The Széchenyi Chain Bridge is a suspension
bridge that links the western and eastern sides, namely Buda and Pest, on the two
(right and left banks, respectively) of River Danube. It immediately boosted the
country’s economic, social and cultural life. (See Photo 2.1).
2.1.2 Economic Roles of Government
Usually, the government has four main economic roles, namely:
2.1 Introduction
35