INFRASTRUCTURE CAPITAL MANAGEMENT AND ECONOMIC GROWTH

Abstract

Infrastructure has great positive contribution to economic growth. The availability of infrastructure is positively correlated with GDP per capita. The accumulation of infrastructure investment alone does not guarantee growth. The good performance of infrastructure is also important in enhancing the contribution of infrastructure to economic growth. Adequate amount of infrastructure investment is essential in the development of developing countries. The return to infrastructure investment depends on the efficiency and effectiveness of infrastructure provision, which determines the country's ability to compete in international trade. The good intensive co-ordination of infrastructures and communication across the transport freight modes is essential in maintaining a competitive and informative edge. Inefficient operation of the existing facilities will lead to a huge wastage of resources and foregone economic opportunity. A regression analysis shows that an improvement in the efficiency and the effectiveness of infrastructure provision is relatively inexpensive and will yield a higher rate of return than new investments in the facilities. The differential in the growth performance of different countries could be explained by their performance in infrastructure service provision. Countries that operate their infrastructure inefficiently and ineffectively are unable to receive the full benefits from infrastructure investments and suffer an income penalty in terms of a lower GDP per capita. The actual magnitude of the growth penalty can also be measured. The case studies of infrastructure projects in Asia-Pacific countries provide the evidences that the failure in the delivery of reliable and efficient services is mainly due to inadequate maintenance, misallocation of resources and inefficient operation that are rooted in the institutional forces. Most of the countries are trapped in the "vicious circle" of poor infrastructure performance because of the inadequate incentives embodied in the institutional arrangements for the provision of infrastructure services The institutional arrangements vary across sectors in individual countries. Changes in the policy and institutional environment will help countries to escape from the vicious circle of poor infrastructure performance. The challenges and opportunities for the developing countries are in the creation of the institutional conditions that oblige suppliers of infrastructure services to be more efficient and more responsive to the demands of the users. The conditions that ensure the effectiveness of the institutional arrangements are in the increased private sector involvement in the provision of infrastructure services, effective competitive environment, effective regulations, greater participation by various groups in decision-making, reducing risk, proper investment planning and financing. Given the great variation in performance, the rewards from the increased efficient and effectiveness of the infrastructure provision will differ by countries and sectors. There are large potential rewards for the commitment in the policy reforms that is required in creating an environment conducive for the inflow of new resources. On the other hand, the implementation of the policy reforms is not easy to adapt to the needs of different sectors and varying country conditions. As a result, innovation and different experimentation in the provision of infrastructure services are required. Developing countries should learn from each other in the adoption of the good practice in infrastructure capital management.