The Economic Theory of Developing Countries' Rise by Zhong Yangsheng;Wang Xiaohui;He Guangmin;

Author:Zhong, Yangsheng;Wang, Xiaohui;He, Guangmin;
Language: eng
Format: epub
Publisher: UPA
Published: 2010-08-15T00:00:00+00:00

8.2 The Functions and Establishment of Infrastructure

Infrastructure or social overhead capital refers to departments, facilities and organizations which provide social benefits, public goods and public services to the people and the society. Infrastructure can be divided into three major categories: productive infrastructure, living infrastructure and social infrastructure. Productive infrastructure includes mutually used facilities or fixed assets in a productive process or an integrated department for organizing production. They can be transportation systems, energy provision systems, water supplying and discharging systems, material supply systems, telecommunication systems, information supply systems, business service systems, etc. Living infrastructure refers to the social departments creating general conditions for living and providing public social services, like residential and public facilities, services for daily life, public affairs, etc. Social infrastructure means public services for the society and its people, like education, research and development, hygiene, environmental protection, judiciary and public administration services. Among the three kinds of infrastructure, the first two kinds are micro-level infrastructure while the third kind is a macro-level one. Micro-level infrastructure is the focus of this chapter.

Infrastructure is the fundamental material condition for social economic growth. It has a determining effect in realizing modernized industrialization and the process of economic take-off. We can say that, without modernization of infrastructure and modernization of industries, sustainable economic growth in a society is impossible. The functions of infrastructure can be described in the following three areas.

(1) Improving the investment environment and facilitating diversification and coordination in economic development. Infrastructure is directly related to the establishment of production departments; its developmental level affects the cost and efficiency of production departments directly and indirectly, and the quality and quantity of supply. For example, developed transportation and information systems rely on coordination among production elements and conditions to lower the cost of transition; it can also help build a wide connection between production departments and the market, maintain a balance in demand and supply and lower the cost of exchange. Therefore, if infrastructure can be well managed in developing countries and regions, it can help investors reduce capital investment, shorten the time of production, and lower the cost of production to gain better investment efficiency. If living and social infrastructure are developed well they will be able to provide a good living environment for investors as well as managerial and technical talents. Hence, lots of investments and projects will be attracted for improving facilities, for establishing production and trade centers, for enhancing the development of leading and supporting industries, for obtaining a reasonable distribution of productivity and the development of labor division, for making production and operation professionalized and modernized, and for improving the economic structure, for market unification, and for increasing labor productivity and economic efficiency of the whole society.

(2) Ensuring a smooth social reproduction process and creating more job opportunities. In a market economy, there is an increasing interdependence and linkage among production units and related processes, which makes social reproduction and the process of economic growth rely on large scale and high levels of infrastructure, like transportation, energy supply, information delivery, material transfer, etc.

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