Infrastructure Development and Urban Economic Growth - Essay Example

Infrastructure development and urban economic growth. al Affiliation) Introduction The paper discusses the studies that have been conducted to determine the effects of infrastructure on the grown of urban area in developed economies. Good infrastructure plays an important role in advocating for a better and competitive national economy. If a problem exists with the performance of infrastructure in a region, the effects can be severe (Weiner,2005). For instance, it was estimated that traffic jams in the United States 50 most populous regions costs over $6.5 billion a year in wasted time and fuel. It is from the above facts that I would like to base my research on the effects of infrastructure development on location decisions and urban economic development. To begin with, the world population growth is at an all-time high. Most continents are registering very high population growth statistics, and the figures are not going south any time soon. This issue is the root cause of so many other underlying issues but most importantly, competition for scarce resources including energy. However, with each passing day, more and more machines are being invented, produced and bought, all with the purpose of making life easier and most importantly, ensuring efficient and effective use of the resources available to us (Button & Reggiani, 2011). Infrastructure Development and Economic Growth The infrastructure development both the social and economic, is one of the main factors that determines the economic growth normally in developing countries. When a country directly invests in infrastructure, it will create the production facilities and stimulate the economic growth. It also reduces the cost of transaction and offer employment chances and opportunities to the less fortunate. On the other hand, lacking infrastructure create the challenge for poverty reduction and sustainable growth. China is of the fast growing nations in the world for the last few year and accounts for over 20% of the global population. The economic growth found in China has increased from 7.5 to over 10%. China’s high economic growth and the rise in competitiveness are underpinned by the massive growth in the physical infrastructure. However, the country needs to maintain the development in a sustainable manner so that the standard of living is improved. Although the infrastructure development has helped in the economic development in China. The Chinese economy began showing the overheating sign in recent year since the basic infrastructures are constrained. Therefore, Infrastructure development plays a crucial role in the economic development process. However, there are various heterogeneities across nations based on the urban environments and the urban processes. Specifically, infrastructure development that is important when analyzing the relationship between the infrastructure development and the economic growth is the infrastructure quality. Economic Policies The rural economic policy of the 1970s and 80s led to a rising in rural labour productivity and large surplus of labor force to enter the service and manufacturing sectors. The open economic policy allowed the inflow of FDI to the manufacturing sector. The cheap labour and right adequate infrastructure were required for the growth strategy. With the unlimited supply of cheap productivity from the rural setting, the public investment in the infrastructure becomes a keystone for the policy strategy. A series of institutional policy increased the financial capacity and inventive of the government for development of infrastructure. Other policies like the simplification of reviewing the government and the approval guideline and performance criteria performance. Infrastructure plays a key role in judging a countys, regions, or country’s development. A form definition of infrastructure is "elementary physical and organizational structures essential for enabling societal operation and enterprise.” We could also say, infrastructure is “services and facilities essential for an economy to thrive." Generally, infrastructure is the connected set of structural elements that offer a framework that supports an entire structure of development. Technology advancement has influenced our choice of where we would want to live. The fact that we feel so helpless without the technology we have created to help us in our daily lives, has prompted us to always want to live in a place where it is easily accessible, and hence the establishment of cities and towns. Majority of the so called, “urban areas ” came into existence due to presence of either a man made resource such as a road junction or natural resource such as a river, which falls into perfect harmony with technology or infrastructure designed for it. Strangely, the existence of that one resource brings into existence yet another resource as more and more people settle to benefit from those particular resources. The following is an illustration of how infrastructure, location decision, and urban development are interrelated. A road crosses another road at a certain point. This point is a danger zone for motorists so they have to slow down and even stop to avoid collision. Since almost all public vehicles stop here, pedestrians who want to board a taxi or a bus see this spot as a convenient place to so. Many pedestrians think the same and before long, it becomes routine for public transport vehicles to pick passengers at that particular place. On one hot afternoon, as people are waiting to catch the next bus, some complain of how thirsty they feel while others need a place to sit. One of them sees this as a potential place to establish a drinks and fast foods joint, for people to quench their thirst and get shade from the sun as they wait to catch the next taxi or bus. Before long, someone else decides to establish a petrol station and another person decides to make another service available and so on. Soon, the junction fills with all kinds of small businesses and competition stars to kick in. In order to attract customers, businesspersons bring the best items and technology to their business premises. Since people want to be close to the infrastructure that is now slowly finding its way to the ‘town’, they begin to buy land that surrounds the region (Bullard, 2007). They might have chosen this region over another because they see the potential for it to grow in terms of technology and economy. The increasing population creates demand for additional goods and services. Social amenities such as schools and churches crop up. As the town acquires new streets and estates, security issues attract the attention of the government, prompting establishment of a police station. The once clean cross roads now stinks of raw sewage and over flooding compounds, prompting the establishment of a town council and soon after, urban council. As this happens, more people relocate to the region, to offer goods or service for pay, from teachers, doctors, technicians to bus drivers. The growth of the town beyond a certain point however, depends on the several things. 1. Long-term public funding which, in turn, will aid in further private investment interest. 2. Development of funding models including user fees for residents of the town actually using infrastructure systems funded through local taxes. 3. A maintenance plan, which means that all new projects should include both cost of construction, and costs associated with ongoing maintenance of the town’s assets. Today, views on regional growth focus the extent of frictions on interregional capital the interdependent nature of investment decisions, flow of labour, and the difference between capital in the private sector and that in public sector. Local public infrastructural development can affect economic activity in different ways. For instance, it can indirectly alter economic activity by controlling the location decisions of companies and households. The addition of new institutions, households and companied into a certain place may, in turn, increase the places agglomeration economies, which impacts positively on its potential for growth. It directly commands output productivity through its inclusion in a companys production process as an unpaid resource (Janelle, 2000). Experimental studies on the effect of public infrastructure on economic growth estimate its secondary effects by showing the relationship between various measures of public capital and measures of regional economic development. The simplest test of the effect of public infrastructure on regional economic growth hypothesizes that the increase in economic activity in a region is essentially attributed to the presence of public infrastructure and the technical progress in that region. Private capital and the flows of labour in a region are directly affected by the region’s differences in social capital and technical growth. The study examines the trend and growth pattern in eight census regions from 1946 to 1962. From the study, we conclude that more developed region grow citing the increase in public infrastructure, which in turn contributed to the growth of technology. The study focuses on the underlying effectiveness of public infrastructure in three expansive categories of regions: 1. Congested regions 2. Intermediate regions, 3. Lagging regions. A characteristic of congested regions is that they have a very densely concentration of population, they have many industries and have many commercial activities, hence a high level of public infrastructure. However, the study shows that any marginal social benefits that might stem from further economic exploitation of a region like this would be out valued by the marginal social expenses such as pollution and congestion because of increased economic activity in that region. Secondly, intermediate regions thrive in abundance of working labor, cheap sources of power, and plenty of raw materials. The region is very conducive for additional economic activity therefore increased economic activity as a result of increased infrastructural development will result to a higher marginal social benefit as compared to marginal social cost. A characteristic of lagging regions is low-income households because of small-scale agriculture or troubled, declining industries. This economic situation attracts less and less firms, households or institutions and here, investment in public infrastructure would have little or no impact whatsoever (Boadway & Shah, 2009). Looney and Frederiksen carried out a direct test of these hypotheses. Their case study was economic development in Mexico, and their findings supported the original study: economic overhead capital affects gross domestic product (GDP) for intermediate regions significantly, but the same cannot be said for lagging regions, whose economic overhead capital shows an opposite effect, as predicted. One way to approach the study on how local public capital stocks affect regional growth is by looking at its effect on agglomeration economies. Public infrastructure affects agglomeration essentially through its command on the extent and spatial arrangement on the location decisions of firm and household. While we see weak experimental evidence of the direct relationship between measures of agglomeration and economic progress, it still provides support for this argument. If public investment precedes private investment, then it would appear that local areas actively use public outlays as an instrument to direct local development. On the other hand, if the sequence of events occurs in the opposite direction, it would appear that local officials merely respond to private investment decisions. Using public outlay and manufacturing investment data from 1904 to 1978 for 40 cities, we come up a crucial interdependence relationship between the private investment and the public outlay in towns found in the south and those with growth after 1950. Public outlays are more likely to influence private investment in cities that experienced much of their growth before 1950. Looney and Frederiksen, in their study of Mexico, support Eberts findings for older U.S. cities that public investment appears to be the initiating factor in the development process rather than the passive factor. The outcome led to an interesting puzzle. The growth answered the question on whether the growth associated with the infrastructure if the public is the outcome of the general increase of the productivity level of the firm. Another question if the outcome is attached to the capital or labor attraction. The hypothesis of Hulten, stated that the decline in economy for the Snowbelt is associated to the difference in the efficiency of the economy compared to the Sunbelt through the computation of the regional difference in productivity. There was little evidence in supporting the hypothesis. Thus, the implication from these findings is that regional differences in the quality and quantity of public infrastructure may have a greater effect on the gyration decisions of factors than on the productivity differentials. Studies raise a host of issues that can be addressed using the public capital stock estimates. I propose to explore a simple question at is basic too much of this discussion: what happens when public capital stock is considered as an input into the production function (In Quaddus & in Siddique, 2013). Reference In Quaddus, M. A., & In Siddique, M. A. B. (2013). Handbook of Sustainable Development Planning: Studies in Modelling and Decision Support. Boadway, R. W., & Shah, A. (2009). Fiscal federalism: Principles and practices of multiorder governance. Cambridge: Cambridge University Press. Janelle, D. G. (2000). Information, place, and cyberspace: Issues in accessibility; with 27 tables. Berlin [u.a.: Springer. Button, K., & Reggiani, A. (2011). Transportation and Economic Development Challenges. Cheltenham: Edward Elgar Pub. Weiner, R. R. (2005). Lake effects: A history of urban policy making in Cleveland, 1825 - 1929. Columbus, Ohio: Ohio State University Press. Bullard, R. D. (2007). Growing smarter: Achieving livable communities, environmental justice, and regional equity. Cambridge Mass: MIT Press. Read More