LECTURE 8 - FLASHCARDS

Economic Motivation for Investments in Infrastructure

• Infrastructure investment is critical for economic development and public goods provision.

Market Failure: Infrastructure as a Public Good

• Definition of Public Goods:
  • Non-rival: consumption by one does not reduce availability to others.
  • Non-excludable: cannot prevent others from using the good.
• Transportation infrastructure (roads, bridges) is generally considered a public good:
  • Non-rival until congestion occurs.
  • Non-excludable due to legal restrictions or equity concerns.
• Government often provides transport infrastructure to ensure availability and address equity.
• Regulation may be necessary due to natural monopolies.

ICT Infrastructure

• Importance of ICT:
  • Rapid advancements in recent decades.
  • Can address market failures, especially imperfect information.
• Key Market Failure: Network Externality:
  • Value increases as more users adopt a service.
  • Adoption can lead to positive feedback loops (bandwagon effect).
  • Example: Early adopters of technologies like QWERTY keyboard can lock users in.
• Impact on development:
  • Private firms may hesitate to invest in the network due to high initial costs and uncertainty of user adoption.
  • Example of cellphones: First-mover risk where the initial provider carries high setup cost but benefits are shared later by competitors.

Impacts of Infrastructure on Development: Physical Investments

Case Study: Dams in India

• Research led by Rohini Pande highlights the complex relationships between infrastructure and development.
• Key findings on irrigation dams:
  • Positively impact agricultural production and reduce rural poverty in downstream areas.
  • No benefits or negative impacts in districts where dams are located.
  • Indicates substantial distributional consequences of infrastructure investment.
  • Importance of evaluating causal impacts through methods such as Instrumental Variable approach.

Evaluating Infrastructure via Randomized Controlled Trials (RCTs)

• Highlighting Brooks and Donovan (2021):
  • Studied impact of bridges in rural Nicaragua, showing direct wage improvement during flood seasons.
  • Indirect benefits included increased agricultural investments and improved savings dynamics.

Improving Existing Infrastructure: Public Transit

• Gaduh et al (2023) findings on Jakarta:
  • Commuters prefer frequent service and direct routes to coverage expansion.
  • Improved transit can reduce informal employment and crime (e.g., Medellin cable cars).

Congestion Pricing Policies

• Addressing congestion in developing nations; examined through Kreindler’s study in Bangalore:
  • Experiment found minimal overall traffic reduction from congestion pricing, suggesting limited impact without strong public transport alternatives.

Impacts of ICT on Markets

Kerala Fish Beach Markets Example

• Jensen (2007):
  • Explored impacts of introducing cellphone service on price dispersion and efficiency in local fish markets.
  • Resulted in reduced waste, higher profits for fishermen, and overall increased market efficiency.

Fast Internet in Africa: Economic Impacts

Examining the Arrival of Submarine Cables

• Significant improvements in internet bandwidth from 2009-2012 led to positive employment shifts:
  • Enhanced job opportunities, income, and reduced inequality.
  • Highlighted shift from low to high-skilled jobs in coastal countries.

Other Policy Options: Public-Private Partnerships (PPP)

• Effective in financing infrastructure in cash-strapped governments:
  • Leverages government land and user base with private expertise and management.
  • Potential issues include vulnerability to corruption and contract renegotiations.

Conclusion

• Infrastructure investments have substantial impacts on economic development, but need for careful planning and impact assessments.
• Different infrastructure types can have unique positive/negative impacts, highlighting importance for equitable distribution and monitoring.