The converse proposition (Kessides 1993) of the following examples:
(1) urbanization without congestion or adverse net environmental impacts,
(2) transport time reduction or better health through improved and easier access to
clean water and sanitation, increase the efficiency of labour with higher economic returns,
(3) Financing and implementation of infrastructure services to save on land, fuel or
water consumption
show that the absence of infrastructure makes itself felt.
Second, the quality of life is raised through infrastructure by
(1) providing basic necessities: clean water, land and air and a better spatial
arrangement of urban areas conducive to architectural appeal and civic pride.
(2) contributing to basic or improved services: transport, health, communications.
(3) employment creation: not only implementing infrastructure plans creates immediate employment, but in many cases, this can be sustained through the long
term, provided a proper mode of financing infrastructure investment, operations
and maintenance is chosen so as to avoid the regular deficits occurring in many
utilities (such as railways, airlines, power, water, etc.. . .).
Third, infrastructure investment through expenditure flows produce some economic effects notwithstanding those induced by the operation or generation of
services, such as
(1) the multiplier effect: when infrastructure facilities are constructed, the money,
spent on wages and materials used, gets transferred – through the workers – to
demand and output in other sectors.
(2) financial “crowding out”: when money is used for infrastructure implementation,
this influences the availability of financial capital in other sectors of the economy. This lack of capital will raise the lending rate – the cost of capital – from
banks: this is described as financial “crowding-out”.
It should, however, be pointed out that the above effects are not specific to
infrastructure; they may also apply to any sector where government expenditure is
involved. Furthermore, “crowding-out” is not limited to investment expenditure. It
would also occur if subsidies (through taxation) or borrowing, rather than revenues
from the services provided, are used to finance operation and maintenance (O&M)
activities.
Fourth, practically all economic processes depend on infrastructure (Hall et al.
2016) as a production input, and the specific role infrastructure plays in enabling
trade, communication and innovation may be complex. Thus infrastructure is a
critical factor in the economic network. As with most networks, any disruption of
one link (here infrastructure) may block or affect the whole chain of activities
leading to additional economic losses. For example, an electricity power cut may
lead to a loss in power throughout the country. Water pumps stop working, equipment and machinery stop working and manufacturers cannot produce goods, while
other businesses cannot operate their computers and ICT equipment.
48
2 Infrastructure and Economic Growth
(1) urbanization without congestion or adverse net environmental impacts,
(2) transport time reduction or better health through improved and easier access to
clean water and sanitation, increase the efficiency of labour with higher economic returns,
(3) Financing and implementation of infrastructure services to save on land, fuel or
water consumption
show that the absence of infrastructure makes itself felt.
Second, the quality of life is raised through infrastructure by
(1) providing basic necessities: clean water, land and air and a better spatial
arrangement of urban areas conducive to architectural appeal and civic pride.
(2) contributing to basic or improved services: transport, health, communications.
(3) employment creation: not only implementing infrastructure plans creates immediate employment, but in many cases, this can be sustained through the long
term, provided a proper mode of financing infrastructure investment, operations
and maintenance is chosen so as to avoid the regular deficits occurring in many
utilities (such as railways, airlines, power, water, etc.. . .).
Third, infrastructure investment through expenditure flows produce some economic effects notwithstanding those induced by the operation or generation of
services, such as
(1) the multiplier effect: when infrastructure facilities are constructed, the money,
spent on wages and materials used, gets transferred – through the workers – to
demand and output in other sectors.
(2) financial “crowding out”: when money is used for infrastructure implementation,
this influences the availability of financial capital in other sectors of the economy. This lack of capital will raise the lending rate – the cost of capital – from
banks: this is described as financial “crowding-out”.
It should, however, be pointed out that the above effects are not specific to
infrastructure; they may also apply to any sector where government expenditure is
involved. Furthermore, “crowding-out” is not limited to investment expenditure. It
would also occur if subsidies (through taxation) or borrowing, rather than revenues
from the services provided, are used to finance operation and maintenance (O&M)
activities.
Fourth, practically all economic processes depend on infrastructure (Hall et al.
2016) as a production input, and the specific role infrastructure plays in enabling
trade, communication and innovation may be complex. Thus infrastructure is a
critical factor in the economic network. As with most networks, any disruption of
one link (here infrastructure) may block or affect the whole chain of activities
leading to additional economic losses. For example, an electricity power cut may
lead to a loss in power throughout the country. Water pumps stop working, equipment and machinery stop working and manufacturers cannot produce goods, while
other businesses cannot operate their computers and ICT equipment.
48
2 Infrastructure and Economic Growth