Infrastructure and

Development

 What does infrastructure mean?

It is quite hard to find the precise definition of
infrastructure as most of the economists relate the
term with the services it provides. Hirschman
(1958) defines infrastructure as capital that
provides public services. According to him
infrastructure often termed as social overhead
capital is considered to include:
.those services without which primary,
secondary and tertiary production activities cannot
function. In its wider sense it includes all public
services from law and order through education and
public health to transportation, communication,
power and water supply as well as such agricultural
overhead capital as irrigation and drainage
systems.(Hirschman, 1958, p. 83)

 According to Fourie (2006), most of the

economists and urban planners describe
two types of infrastructure that are
described below:
1. Economic infrastructure includes those
services that boost economic growth
through a wide range of different
infrastructure facilities such as roads,
highways, railroads, airports and seaports
provide transportation services; internet,
fixed telephone subscriptions and mobile
telephone
subscriptions
provide
telecommunication services; power plants,
transmission and distribution lines that

2. Social infrastructure corresponds to those

activities which raise the well-being of people.
It includes those facilities that promote health,
education and cultural standards of masses.
Social infrastructure includes institutions such
as schools, libraries, universities, clinics,
hospitals, courts, museums, playgrounds etc.
Explaining Physical Infrastructure
Fourie (2006) argues that infrastructure
consists of two elements- capitalness and
publicness. Thus a common characteristic of
infrastructure is that it is strongly used by
public. The author explains following features
of physical infrastructure:

Infrastructure as capital goods: Infrastructure goods

are related to capital goods because of two shared
characteristics. One is that infrastructure projects
have high initial fixed costs with maintenance and
upgrading costs over time. Secondly, most of
infrastructure are bulky by nature e.g., power
plants, roads, highways, railroads etc.
Infrastructure as public goods: Pure public goods
have two critical properties- they are non-rival and
non-excludable.
Infrastructure
goods
are
considered to be mixed goods, such as a
telephone line or electricity connection could be
considered non- rival but excludable. On the other
hand a non-toll congested road could be nonexcludable but rival.

Infrastructure with externalities: There are many cases

where actions of one individual or firm affect other
individual or firms. Physical infrastructure usually
carries positive externalities. For example, a high
speed railroad between two cities not only benefit
daily passengers but will also carries some positive
externalities such as decline in road congestion;
fewer road accidents; increase in business catering
to rail travel. An electricity connection to a rural
village will not only provide a new source of energy
but will also lessen the risk of fire and pollution to
environment.
On
the
other
hand,
physical
infrastructure can also produce negative externalities
e.g., fauna and flora biodiversity might be destroyed
by constructing a dam in some protected area.

Impact
of
physical
Infrastructure
on
economic growth and development
The
services
provided
by
infrastructure
investments lead to growth and better
standards of living in the following ways:
Infrastructure services, such as transport, water
and energy, are intermediate inputs for
production, and any reduction in these input
costs enhances the profitability of production,
thus permitting higher levels of output. For
example, cheaper electricity can reduce the
input cost to manufacturing firms. In the same
way water infrastructure improvements can
reduce the cost of irrigation.

 Infrastructure services raise the productivity

of other input factors, for example by
permitting the transition from manual to
electrical
machine,
reducing
workers
commuting time, and improving information
flows through electronic data exchange.
Infrastructure
developments,
such
as
improved transport, reduce workers time
spent on non-productive activities; raise the
economic returns to labor. An efficient
metropolitan railway connecting residential
with commercial areas would increase
workers productive time hence efficiency.

 Infrastructure
also
provides
employment
opportunities, especially in the market of unskilled
and semi-skilled workers. When constructing a
highway or building a large dam, jobs in the
construction industry would be created, boosting
growth in the sector. Furthermore, these large
structures also require maintenance, which further
boosts the long term creation of jobs.
Better physical infrastructure facilities also
contribute positively in at least four other areas:
trade, competitiveness, regional integration and
tourism. According to World Bank (1994):
Inadequate and unreliable infrastructure cripples
the ability of countries to engage in international
trade. (World Bank, 1994: 17)

 For example, a British telecommunication services company

charges US $0.18, for a three minute telephone
conversation from Switzerland to US. While the same length
of telephone conversation from Switzerland to Albania costs
$0.81. The distance between Albania and Switzerland is
much less than the distance between US and Switzerland,
but Albania has a poorer telecommunication infrastructure,
which probably explains the difference. In the same way,
lack of access to transport service increases the transaction
cost of carrying materials. Large ships would bypass
harbors with inadequate facilities and large trucks would
bypass villages with cracked roads. Infrastructures facilities
that reduce transport costs between neighboring countries
may promote inter- regional trade, benefiting the region as
a whole. Physical infrastructure also helps to promote
tourism and contribute to the local economy e.g. the blue
train in South Africa; the golden gate bridge in US and
Sydney Harbor Bridge in Australia are one of the biggest
tourist attractions around the world.

 Infrastructure raises the quality of life by creating

amenities in physical environment, such as cleaner
water, land and air. The consumption of
infrastructure services by households contributes
to economic welfare because many of these
services, particularly clean water and sanitation
facilities are essential for health and create
environment
amenities;
others
(recreational
transport and residential telecommunication) are
valued items of consumption. These services also
provide access to jobs, education and opportunities
for consumption of other goods. Thus, reduction in
costs and improvements in infrastructure facilities
to households can have the beneficial effects of
increasing their income and consumption, raising
the productivity of their labor.

 Besides increasing the efficiency of productive

and non-productive activities, infrastructure
investments may also increase equity. A decrease
in inequality in living standards can be done by
investing in certain types of infrastructure or in
certain regions. According to World Bank
(1994:20) the poor are defined in terms of their
access to infrastructure services such as access to
clean water, sanitation, education and health
facilities. An improvement in these infrastructure
facilities would lead to less poverty and a more
equitable society. For example, a rural road
construction not only enhances growth, but it also
increases access to schools, improving the human
capital in the region.

Rural Urban Migration

Basic Concepts
1. Rural urban migration
The movement of people from rural villages, towns
and farms to urban cities in search of jobs
2. Informal sector
The part of the urban economy of developing
countries characterized by
. Family ownership of enterprises,
. petty retail trade and services,
. labor-intensive methods,
. free entry
. unregulated and competitive markets

 Skills acquired outside the formal school

system
Small scale operation
Reliance on indigenous resources
Formal Sector Characteristics
Difficult entry
Frequent reliance on overseas resources
Corporate ownership
Large scale of operation
Capital intensive and often imported
technology
Formally acquired skills

 Protected markets ( through tariff,

quota and trade licenses
Regulated by government
Urban Bias
The notion that most governments in
developing countries favor the urban
sector in their development policies,
thereby creating a widening gap
between the rural and urban
economies.

Women in informal sector

In some regions of the world, women
predominate among rural urban migrants
Many of these women simply accompany
their spouses
A growing number of women in Latin
America, Asia and Africa migrate to seek
economic opportunity
Mostly, men got job in formal sector and
women often represent the bulk of informal
sector

 Work for low wages and unstable

jobs with no employee or social
security benefits
Increase in number of single femalecontributed to rising proportion of
urban households headed by women
Female headed households
1. Low productivity
2. Informal sector employment
3. Higher dependency burden
4. Malnourished

5. Less likely to obtain formal education,

health care, clean water and sanitation
6. Excluded from government services
7. Drop out rate among children from female
headed household is higher
Many women run small microenterprises
that require no or little start up capitalmarketing of homemade foodstuff and
handicrafts
Studies in Latin America and Asia-where
credit is available to women with informal
sector microenterprises-repayment rates
have equaled or exceeded those from men

 Women are able to make more

productive use of capital-rate of
return on investment often surpass
those for men
But credit facilities are limited for
women-ineligible for small loans
Government policies focus more on
formal sector
To solve the plight of poor urban
women- efforts are required to
integrate women into economic
mainstream

 The legalization and economic

promotion of informal sector, where
majority of urban female labor force
is employed, could greatly improve
women financial flexibility and
productivity of their ventures.
Provision of affordable child care and
family planning services would
lighten the burden of womens
reproductive roles and permit them
greater economic participation.

Inclusive growth
Keynes once said that if there are five
economists, they will come-up with six
definitions of economics.
World Bank defines inclusive growth
as follows:
inclusive growth refers both to the
pace and pattern of growth, which are
interlinked and must be processed
together

 Thus, in broader sense, inclusive growth

means the inclusion of all sections of society
in the process of economic development and
sharing of its benefits. Its not only an
outcome but a process or mean itself.
The idea of inclusive growth is not as simple
as of growth. In economics, growth is the
outward shift in PPF. While the word
inclusive generally means including much or
everything. Thus Inclusive Growth is the
growth process that provides opportunities
to all segments of the society to benefit
from economic expansion.

How to achieve Inclusive Growth?

Growth accelerators
Strategies for growth
+
Equality accelerators
Which make the growth more
equitable
And thus, more inclusive

Measuring Inclusive Growth

Most studies measures whether a growth
process is inclusive by analyzing income
growth among the whole population.
Inclusive growth is about ensuring equality
of opportunities
Increase in income is a necessary condition
of inclusive growth but not a sufficient one:
while income of poor might increase with
growth, equality of opportunity might not.
The essential condition for growth to be
inclusive is to ensure that there are equality
of opportunities among the populations.

In developing countries like Pakistan, it is airy that

economic opportunities created by growth process are
available to all people in the society, particularly to the
poor. Dr. S. R. Osmani in his paper, The Demands of
Inclusive Growth: Lessons from South Asia explained
the relevance of inequality and poverty with inclusive
growth. According to him, in Pakistan the growth
process seems to have been inclusive enough to give
most groups of people adequate opportunities for
gaining from growth. But within each group only some
individuals have grabbed those opportunities while
others have not. And the result is with-in group disparity
and reduced poverty. Since the growth process in South
Asia has systematically drove poverty and inequality in
opposite direction. Because in every group some
individuals failed to link-up with the growth process,
thereby worsening inequality and meliorating poverty.

 Now the point to ponder here is that why

people, especially poor people dont have
access to economic opportunities? The
answer is that poor people are constrained
by circumstances .It is the common person
who bear the brunt of politicized policies or
poor implementation of policies. Because
the gains from economic progress are being
shared unevenly and large segments of
people are being denied the access to such
basic public services as the provision of
security of life, employment, education,
housing and health.

 The solution lies in policy intervention that

government should formulate policies and
programs that facilitate the full involvement
of
poor
people
in
the
economic
opportunities. It will lift the curtain of
uncertainty that has clouded the economic
environment and hindered to promote
inclusive growth.
Therefore, Inclusive Growth is the growth
that not only creates new economic
opportunities but also one that assure
access to the opportunities created for all
segments of society, particularly the poor.