Infrastructure Development and Economic Growth of a Country - Term Paper Example

Economic growth Infrastructure development and Economic growth of a country “The role of physical infrastructure in contributing to economic development is an important one - its contribution is clearly vital and a pre-requisite for continuing prosperity. Good quality infrastructure is necessary to avoid bottlenecks and service disruptions, and support a range of activities. Infrastructure investment involves deploying scarce resources, so making informed and intelligent choices is important for prosperity” (Sustainable Development and Infrastructure, 2005) Infrastructure development is the backbone for the development of a country. A country cannot develop without having proper transportation facilities, (through road, rail, sea and air) power (electricity), health facilities (hospitals, nursing homes), water supply, real estate (land, buildings, flats, hotels etc.) and man power (labor force). Dubai is one best example for the analysis of relationship between infrastructure and economic development. Most of us believe that all the gulf countries, economically developed because of the oil resources. But it is not true at least in the case of Dubai. The economy of Dubai is related to the business. It is considered as the business hub of Middle East. Those who have visited Dubai 25 years ago will be surprised to see the infrastructure development there. Around 25 years before there was only one building (Trade Center) which has more than 10 storeys. But now hundreds of big multi storey buildings are there. In fact one of the tallest buildings is under construction there. As far as the roads were concerned, we can see 4 track two way one way roads all over Dubai. More over the rail facility is also implemented recently. Air transportation is one Economic growth 2 of the best in the world. Dubai air port is one of the busiest airports in the world. Cargo movements through cargo ships are immense. Most modern super specialty hospitals are large in numbers. Energy is not a problem at all. Around 25 years before such facilities were less in Dubai. We can see the influence of such advanced infrastructure facilities on Dubai economy. Educational facilities are matching with international standards and availability of labor force or man power also is excellent. Though the declared aim of Globalization is the equality of opportunities to all countries irrespective of poor, developing or developed countries, we can see that the poor countries could not develop as much as anticipated. This is because of the poor infrastructure facilities in such countries. Countries like Somalia and Kenya are best examples for the under developed economy even in the era of Globalization. They don’t have enough, educated persons, transportation facilities, energy availability or real estate development in order to grab the opportunity. Infrastructure development and economic growth are the two sides of the same coin. They cannot be separated. Without proper infrastructure there will not be any economic development. Most of the governments now understood the importance of infra structure development and they are warmly welcoming the private participation in the infra structure development. Economic growth 3 Asymmetric information and business relationships “Decision making is based on information supplied and the application of different criteria (Risk Assessment with Asymmetric Information, 1994). For making good decisions information is so important.Information is one of the essential parts for the development of a business. Improper information can adversely affect the growth of a business while accurate information always contributes to the growth of the organization. One of the most relevant examples for the importance of accurate information is the current financial crisis. Most of the laymen believed that banks are the safest place where they can keep their money intact. They also believed that all the public sector banks have the control of the government and hence their money is safe under their custody. Nobody researched about the involvement or role of government in controlling the public sector banks. Because of their asymmetric information about the safety of their money in banks, lot of laymen lost large amount of money. The asymmetric information about share markets was also caused lot of money loss for the public. Most of the public were unaware of the risk factors involved in investing in share markets and in mutual funds. The greedy public in order to earn more money invested heavily on capital share markets and mutual funds. Though the offer documents clearly warns the public about the risk factors in investing shares and mutual funds, public never took it as serious. Economic growth 4 As far as business and business relationships are concerned, asymmetric and lack of information always causes problem. Consider the case of a customer who purchased a product or service based on the information written on the manual. If all the information provided in the manual is correct he will be happy and will have more faith in the company. On the other hand if some of the information is found to be false, then the customer may lose the faith in the company. For example most of the companies offer warranties for their products. But when we approach them with complaints some companies may cite silly excuses in order to charge you for the correction of the defective products. In such cases we will lose faith in such organizations. Asymmetric information about workers productivity can spoil the relationship between the management and the workers. “Since firms cannot observe workers true productivity, they use long working hours as a mechanism to sort productive workers. The model therefore predicts that workers with a high productivity will tend to work inefficient long hours. An empirical analysis confirms this prediction: high-productivity workers are more likely to experience hour’s constraints in the form of over employment than low-productivity workers. Moreover, the extent of over employment is positively related to productivity. (Asymmetric information about workers productivity as a cause for inefficient long working hours, 2001) Such improper information will result in over workloads for even dedicated hard working workers. Such situations will often result in labor agitations and strikes and thereby it can adversely affect the mutual relationships. Economic growth 5 Information is important and essential for the wellbeing of a company. It can make or break the progress of a business.  Natural monopolies in private or public sector “The great evil in economics is not communism, not socialism, not capitalism, not landlords or bosses, not unions, not feudalism or industrialization or automation, not progress or lack of it, and not any scarcity of natural resources. No, the great evil in economics is COERCIVE MONOPOLY” (Fred E. Foldvary, 1999). The term monopoly in business is defined as a condition in which a single seller or service provider controls the entire market of a particular good or service. In such a market situation the product manufacturer or service provider who controls the market, may not face much competition from the competitors. In such a monopolized market it is not possible to expand the supply by allowing a new entry into the market. Only the existing organization or organizations are the unique source of the product. To enter such a monopolized market one has to buy out one of the existing company or organization. Natural monopoly occurs only when the supply exceeds the demand. For such large amount of production, the initial capital must be a huge amount. When the supply exceeds the demand the average unit price of the product also will be reduced. Under such circumstances, it is very difficult to compete with them by a competitor with a moderate amount of capital investment. Because of the moderate amount of capital, their production capacity will be less and their unit price will be more. So they may not Economic growth 6 be able to lower the price of their product to compete with the other supplier in control of the market. One best example for private monopoly is Microsoft. The computer world especially the operating system area has been monopolized by the Microsoft Company. Starting from Disk Operating System (DOS) they gradually shifted to Windows operating system. Because of lack of competition in this field they were succeeded in monopolizing the market. They are charging too much for each and every application which needed to work on their operating systems. The competitors Linux though offered free software as an answer to Microsoft, because of the windows’ ability to accommodate large quantity of applications, compared to Linux; they were unable to challenge Microsoft. It is not possible for the governments to completely privatize the service sector. Though private participation allowed in such service sectors, government intervention is necessary for the people. Private companies always look forward to make as much as profit out of the service sector. So the public will always be exploited by the private companies in service sector. So the government control is essential in the service sector. Economists are of different opinion about natural monopoly. Proponents of market monopoly believe that the consumers will get products with less unit price because of the mass production. However critiques believe that the unusual dominance of a private firm can raise the unit price of a product by regulating the supply below the demand which will lower the overall social welfare. They believe that such monopoly actually Economic growth 7 reflects the failure of a market. If competitors are there in the market, the competition will result in better product availability at a competitive price. For a competitive firm the price of their product will be fixed based on the market condition. But for a firm who has monopoly in the market can vary the prices of the product by controlling the quantity of the product in the market. In other words when the demand is more they will decrease the quantity of the product and will increase the price of the product. Economic growth 8 References 1. Sustainable Development and Infrastructure (December 9,2005) (Accessed on 29/12/08) 2. Asymmetric information about workers productivity as a cause for inefficient long working hours (November 2001) (Accessed on 29/12/08) 3. Risk Assessment with Asymmetric Information(1994) (Accessed on 29/12/08 4. Fred E. Foldvary (1999) Natural Monopolies Accessed on 29/12/08 Read More