Module - 3
Infrastructure: Importance and Application
Brief Outline
Importance of Infrastructure
Applications of Infrastructure Economics
Infrastructure and Public Policy
Importance of Infrastructure
According to World Bank (2015), infrastructure helps determine the
success of manufacturing and agricultural activities
Investments in water, sanitation, energy, housing, and transport improve
lives and help reduce poverty.
New information and communication technologies promote growth,
improve delivery of health and other services, expand the reach of
education, and support social and cultural advances.
Thus, infrastructure is not the end result of economic activities; rather it
is the framework that makes economic activity possible.
Benefits of the Study of Infrastructure Economics
Link between economic growth and development
Understanding the role of Infrastructure in Production of goods and
services
Getting the idea of how cost-efficient services is being produced with the
help of Infrastructure
Helps in evaluating the benefits of growth through infra projects
Exploring the promotional role of Infrastructure in trade and commerce
Attracting foreign capital (FDI and FII)
Regional economic integration
Growth and Development through Infrastructure
Infrastructure economics attempts to study the infrastructure is supporting
certain principles of economics
Rodan Model: Big Push-large minimum investments are needed in industrial
and infrastructure sector to overcome the obstacles to development and attains
the high growth path
Social Overhead Capital - examples of social overhead capital include
railways, roads, sanitation, schools, hospitals, and public parks
Underdeveloped transportation infrastructure results in slow and uncertain
delivery of goods and services, hinders economic growth and distribution
The economic growth and success of US, Singapore, South Korea, Taiwan can
be attributed to investments in social infrastructure such as education and health
Production and Infrastructure
Infrastructure supports the production of goods and services by providing basic
structures and facilities
The well developed transport networks reduces the cost of bringing the raw
materials and other critical inputs to the manufacturing units
The power or electricity is crucial for production units and augments to the
production of goods and services
Investment in education and health creates human capital that provides labor for
the industry
Telecommunications augment in marketing and provides information about the
markets
Cost-efficient - producing a good or service at the lowest cost
Foreign capital and Infrastructure
Infrastructure is critical in attracting foreign capital
USD 8 trillion of infrastructure investments are required in Asia
between 2010-2020
The infrastructure investment –gap is huge in Asia, Sub-Saharan Africa
and Latin America
Countries having better infrastructure attracts more foreign investments
Trade Commerce and Infrastructure
Trade is regarded as engine of growth. Sound and adequate
infrastructure is, however, needed for sustained growth of exports
Well developed and adequate infrastructure is essential for promotion
and facilitation of production, bring down the cost of production, limit
the transaction costs and make exports competitive globally
According to the 2013 Mercer’s Cost of Living Index and Savills’ Live-
Work Report, Singapore continues to be cost competitive compared
with other major financial centres because of well developed
infrastructure facilities
Infrastructure and Regional Economic Integration
There are forward and backward linkages of infrastructure development and
regional economic integration
Regional integration can take the form of either free trade area, customs union,
common market, economic union or monetary union- the institutional
framework is provided by the adequate and proper infrastructure
By encouraging regional integration countries are better-off in trade, share
resources and build mutually beneficial infrastructure
Integrated markets with regional integration and efficient infrastructure helps in
attracting investments, and provides quality goods and services at competitive
prices
For instance: Japan will provide USD 35 billions to India for Infrastructure
development in next 5 years
Applications of Infrastructure Economics
Urban Finance
Business Economics
Civil Engineering
Local Bodies
Public Policy
Urban and Rural Management
Community Development etc.
Infrastructure and Public Policy
Public policy plays critical role in Infrastructure development
Public Policy- The policies proclaimed by the government such as regulatory measures,
funding priorities and other course of [Link] instance: government might take the
decision to build highways or canals or open a new university
Public Choice- Economic analysis of the government decision making
Collective action- The government may work under the influence of special interest
groups that serve their own interest
Rent seeking -when government approves a program that benefits only a small group
within society but whole society pays the cost
Welfare State- found particularly in more prosperous and democratic societies,
distributes resources extensively to provide for the health, education, employment,
housing, and income support of its citizens
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