(2) investment in infrastructure (roads, power, water) cannot produce economic
benefits (produce and sell goods), only develop the potential through
complementing the productive capacity of other resources (factory, workers).
(3) infrastructure must be able to provide reliable and quality service as required by
users who will then be able to produce and/or consume the most durable and
significant activities.
(4) user charges to discourage wasteful consumption. If these are based on economic prices (costs of production/supply, externalities and willingness to pay),
economically efficient infrastructure facilities, with favourable environmental
impacts can be provided. Otherwise, infrastructure may be inadequate or inexistent. The reduced availability may worsen inequalities, rather than the poor
getting improved access to services.
2.6 Infrastructure’s Effects on Economic Development
In developing countries, the effect of inadequate infrastructure services on the
economic growth and welfare is more visible, with regards to availability, reliability
and quality, diversity and price range compared to developed countries (Table 2.4).
2.7 Infrastructure and Macroeconomic Stabilization
It is the government’s duty to see that resources are well utilised to produce the
highest benefits to the country. When the same funds can finance only one of two
projects A or B, the one that should be upheld is the one producing the higher
benefits, not necessarily financially, but rather to the economy of the country. For
example, trying to sell water to poor people will not yield high revenues, but it is
essential to the economy that the citizens get the benefit of a safe, potable water
supply to remain in good health to provide the labour force necessary to run the
economy.
Thus, even if public money spent on infrastructure ‘crowds out’ investment from
the private sector, this will become significant only if higher benefits could be
obtained from the same funding, labour and materials.
Infrastructure benefits can only be assessed through the degree the infrastructure
effectively satisfies the demand from the users in the economy and the ancillary
externalities (environmental impacts – see also Fig. 17.1). On this basis, when a
public infrastructure is being contemplated, it is difficult to assess its impact on
economic growth if there is an inefficient allocation of resources and prior to it being
evaluated by users (Fig. 2.2).
Allocating resources efficiently to infrastructure is highly dependent on how
expenses are financed – do they come from annual taxes collected or from a user
service charge i.e. users pay for the service? The financing policies must be
50
2 Infrastructure and Economic Growth
benefits (produce and sell goods), only develop the potential through
complementing the productive capacity of other resources (factory, workers).
(3) infrastructure must be able to provide reliable and quality service as required by
users who will then be able to produce and/or consume the most durable and
significant activities.
(4) user charges to discourage wasteful consumption. If these are based on economic prices (costs of production/supply, externalities and willingness to pay),
economically efficient infrastructure facilities, with favourable environmental
impacts can be provided. Otherwise, infrastructure may be inadequate or inexistent. The reduced availability may worsen inequalities, rather than the poor
getting improved access to services.
2.6 Infrastructure’s Effects on Economic Development
In developing countries, the effect of inadequate infrastructure services on the
economic growth and welfare is more visible, with regards to availability, reliability
and quality, diversity and price range compared to developed countries (Table 2.4).
2.7 Infrastructure and Macroeconomic Stabilization
It is the government’s duty to see that resources are well utilised to produce the
highest benefits to the country. When the same funds can finance only one of two
projects A or B, the one that should be upheld is the one producing the higher
benefits, not necessarily financially, but rather to the economy of the country. For
example, trying to sell water to poor people will not yield high revenues, but it is
essential to the economy that the citizens get the benefit of a safe, potable water
supply to remain in good health to provide the labour force necessary to run the
economy.
Thus, even if public money spent on infrastructure ‘crowds out’ investment from
the private sector, this will become significant only if higher benefits could be
obtained from the same funding, labour and materials.
Infrastructure benefits can only be assessed through the degree the infrastructure
effectively satisfies the demand from the users in the economy and the ancillary
externalities (environmental impacts – see also Fig. 17.1). On this basis, when a
public infrastructure is being contemplated, it is difficult to assess its impact on
economic growth if there is an inefficient allocation of resources and prior to it being
evaluated by users (Fig. 2.2).
Allocating resources efficiently to infrastructure is highly dependent on how
expenses are financed – do they come from annual taxes collected or from a user
service charge i.e. users pay for the service? The financing policies must be
50
2 Infrastructure and Economic Growth