Table 2.4 Effect of infrastructure on economic development
Contributions to growth through reduction in costs
Effects on
1
Production, investment
and employment
Infrastructure unreliability results in multiple economic costs:
(1) direct costs resulting from loss of raw materials or finished
goods, delays in production, potential damage to electronic
equipment, leading to existing production capacity being
underused, and placing constraints on the production efficiency.
(2) the user must add more capital to invest in alternative (more
reliable) sources.
(3) the resulting higher production costs and intermittent output have a negative impact on other sectors of the economy,
with bottlenecks and underused capacity in other industries.
2
International
competitiveness
Countries, which intend to trade internationally, cannot sufficiently rely on inadequate and unreliable infrastructure. As
information technologies have greatly reduced logistics costs,
these countries, wishing to acquire business overseas, need to
invest in modern logistics management.
Apart from policy instruments which provide a suitable regulatory framework for production and trade, EPZs (export
processing zones) comprise two components:
(1) a suitably well connected – sea, air, and road transport
systems – industrial estate.
(2) communications infrastructure and utilities.
When zones are located in faraway regions, the infrastructure
investment costs are exorbitant, and as often, they do not
produce enormously either, they do not produce high returns.
3
Domestic Market
development
After a farmer has produced his goods, he has to bring them to
the market. A good road or transport system will greatly reduce
his transport costs and increase his marketing opportunities.
Beenhakker (1987) mentions that for foodstuffs, in developing
countries, marketing and transport costs amount to 25–60% of
the final prices, equally shared.
A competitive marketing system may be created by providing
communication and transport systems which give access to
market transparency and market information.
Contributions to growth through structural change
4
Economic diversification
Infrastructure produces similar direct effects in industry or in
agriculture with regards to production costs and profitability.
Income levels are affected, as well as alternative income
sources being available, consumption levels, and the health of
the population. As more people use credit and alternative
nonfarm employment outside the farm becomes possible, this
results in increased total earnings.
In Thailand, (Binswanger et al. 1989) reduced transport costs
from improved roads were found to shift local demand away
from cheap locally-produced goods as costs of competing
manufactured consumer goods were reduced; however, the
improved roads were found to contribute more nonfarm jobs
than were lost.
(continued)
2.7 Infrastructure and Macroeconomic Stabilization
51
Contributions to growth through reduction in costs
Effects on
1
Production, investment
and employment
Infrastructure unreliability results in multiple economic costs:
(1) direct costs resulting from loss of raw materials or finished
goods, delays in production, potential damage to electronic
equipment, leading to existing production capacity being
underused, and placing constraints on the production efficiency.
(2) the user must add more capital to invest in alternative (more
reliable) sources.
(3) the resulting higher production costs and intermittent output have a negative impact on other sectors of the economy,
with bottlenecks and underused capacity in other industries.
2
International
competitiveness
Countries, which intend to trade internationally, cannot sufficiently rely on inadequate and unreliable infrastructure. As
information technologies have greatly reduced logistics costs,
these countries, wishing to acquire business overseas, need to
invest in modern logistics management.
Apart from policy instruments which provide a suitable regulatory framework for production and trade, EPZs (export
processing zones) comprise two components:
(1) a suitably well connected – sea, air, and road transport
systems – industrial estate.
(2) communications infrastructure and utilities.
When zones are located in faraway regions, the infrastructure
investment costs are exorbitant, and as often, they do not
produce enormously either, they do not produce high returns.
3
Domestic Market
development
After a farmer has produced his goods, he has to bring them to
the market. A good road or transport system will greatly reduce
his transport costs and increase his marketing opportunities.
Beenhakker (1987) mentions that for foodstuffs, in developing
countries, marketing and transport costs amount to 25–60% of
the final prices, equally shared.
A competitive marketing system may be created by providing
communication and transport systems which give access to
market transparency and market information.
Contributions to growth through structural change
4
Economic diversification
Infrastructure produces similar direct effects in industry or in
agriculture with regards to production costs and profitability.
Income levels are affected, as well as alternative income
sources being available, consumption levels, and the health of
the population. As more people use credit and alternative
nonfarm employment outside the farm becomes possible, this
results in increased total earnings.
In Thailand, (Binswanger et al. 1989) reduced transport costs
from improved roads were found to shift local demand away
from cheap locally-produced goods as costs of competing
manufactured consumer goods were reduced; however, the
improved roads were found to contribute more nonfarm jobs
than were lost.
(continued)
2.7 Infrastructure and Macroeconomic Stabilization
51