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Economics of Infrastructure.pdf

  1. 1. Economics Of Infrastructure Unit – 1 Prof. Nimble Vivek
  2. 2. What is economic growth???? And why is it so important for a Country?
  3. 3. What do you need for a better Life?? • Good health • A place to live • Access to education • Nutrition • Social connections • Respect • Peace • Human rights • A healthy environment • Happiness and so on
  4. 4. • Poverty, prosperity, and growth are often measured in monetary terms, most commonly as people’s income. • Monetary measures have an important disadvantages • They are not actually understanding people’s access to goods and services.
  5. 5. • Many of the things you see are products that were produced by someone so that you can use them. Can you name some of them??
  6. 6. • In the past many of these products were not available. • The majority did not have access to the most basic goods and services they needed. • A recent study on the history of global poverty estimates that just two centuries ago roughly three-quarters of the world “could not afford a tiny space to live, food that would not induce malnutrition, and some minimum heating capacity.” Michail Moatsos (2021) – Global extreme poverty: Present and past since 1820. Published in OECD (2021), How Was Life? Volume II: New Perspectives on Well-being and Global Inequality since 1820, OECD Publishing, Paris, • https://doi.org/10.1787/3d96efc5-en
  7. 7. A few centuries ago the only way to produce a book was for a scribe to copy it word-for-word, by hand. Book production was a slow process; it took a scribe about eight months of daily work to produce a single copy of the Bible
  8. 8. 15th century the goldsmith Johannes Gutenberg combined the idea of movable letters with the mechanism that he knew from the wine presses in his hometown. He developed the printing press. Gutenberg developed a new production technology and it changed things dramatically
  9. 9. This is one example of how growth is possible what is economic growth? An increase in the production of goods and services that people produce for each other.
  10. 10. A list of goods and services that people produce for each other • Home appliances • Food • Knowledge • Tools and Technology • Social services • Free time activities • Health and wellness • Infrastructure and so on………..
  11. 11. Economic growth is an increase in the quantity and quality of the economic goods and services that a society produces.
  12. 12. What are economic goods and services? • Economic growth is not concerned with all goods and services, but with a subset of them: economic goods and services. • A production boundary defines those goods and services that we consider when we speak about economic growth.
  13. 13. • some of the goods can be complicated to decide on which side of the production boundary they fall. • Production of illegal goods. • Production within a household–If we grow tomatoes in our backyard and make soup from them?
  14. 14. Characteristics of Economic Goods and Services • Economic goods and services are those that can be produced and that are scarce in relation to the demand for them. • They are not free good (like sun light) • An economic good or service is provided by people to each other as a solution to a problem • Helpful in deciding whether you are looking at an economic product is ‘delegability’.
  15. 15. How can we measure economic growth? • Growth is often measured as an increase in income or inflation-adjusted GDP per capita. But these measures are not the definition of it – just like life expectancy is a measure of population health, but is certainly not the definition of population health.
  16. 16. •How would you determine whether the quantity and quality of all economic goods and services produced by a society increased or decreased over time?
  17. 17. • First measure the quantity and quality of all the many, many goods and services that get produced and then find a way to aggregate all of these measurements into one summarizing metric. • No matter what measure you propose for such a difficult task, there will always be problems and shortcomings
  18. 18. • No matter what measure you propose for such a difficult task, there will always be problems and shortcomings • Possible ways to measure growth is • To make a list of some specific products that people want and to see what share of the population has access to them. • Tracking the ratio between people’s income and the prices of particular goods and services
  19. 19. Global inequality: How do incomes compare in countries around the world? • Real income = Nominal income / price of goods and services • Real income grows when people’s nominal income increases or when the prices of goods and services decrease.
  20. 20. • Global inequality is very large. • In a rich country like Denmark an average person can purchase goods and services for $54 in a day, while the average Ethiopian can only afford goods and services that cost $3 per day (Source: World Bank Poverty and Inequality Platform)
  21. 21. Phases of Economic Growth • The economy moves through different periods of activity. This movement is called the “business cycle.” It consists of four phases: • Expansion – During this phase employment, income, industrial production, and sales all increase, and there is a rising real GDP. • Peak – This is when an economic expansion hits its ceiling. It is in effect a turning point. • Contraction – During this phase the elements of an expansion all begin to decrease. It becomes a recession when a significant decline in economic activity spreads across the economy. • Trough – This is when an economic contraction hits its low.
  22. 22. Common measure of economic growth is the real GDP • The total value of everything, both goods and services, produced in an economy, with that value adjusted to remove the effects of inflation.
  23. 23. How to Generate Growth??
  24. 24. Infrastructure and Economic Development • Infrastructure and economic development are responsible for the overall development of any country. • Several policies have been initiated by the governments of different countries to ensure growth. • Infrastructure and economic development always go hand-in- hand.
  25. 25. Infrastructure as ‘Public Good’ • The infrastructure deficit economies suffer the ignominy of stunted development. • These countries will have lower economic multipliers. Several other societal parameters suffer, manifesting into a deprived ecosystem • Relevant infrastructure enhances access by proving logistics, transport, and connectivity, enabling cost reduction, facilitating and even expanding production.
  26. 26. Infrastructure influences competitiveness • Infrastructure or the lack of it has a large bearing on the investment climate. It influences business locations, migration and ‘settlement’ decisions. • Mumbai is preferred to Patna
  27. 27. What is Public Infrastructure? • Public infrastructure refers to infrastructure facilities, systems, and structures that are developed, owned, and operated by the government. It includes all infrastructure facilities that are open to the general public for use.
  28. 28. Examples of Public Infrastructure 1.Transportation infrastructure – Bridges, roads, airports, rail transport, etc. 2.Water infrastructure – Water supply, water resource management, flood management, proper sewage and drainage systems, coastal restoration infrastructure 3.Power and energy infrastructure – Power grid, power stations, wind turbines, gas pipelines, solar panels 4.Telecommunications infrastructure – Telephone network, broadband network, WiFi services
  29. 29. 5. Political infrastructure – Governmental institutions such as courts of law, regulatory bodies, etc.; Public security services such as the police force, defense, etc. 6. Educational infrastructure – Public schools and universities, public training institutes 7. Health infrastructure – Public hospitals, subsidized health clinics, etc. 8.Recreational infrastructure – Public parks and gardens, beaches, historical sites, natural reserves
  30. 30. Types of Infrastructure • Soft Infrastructure Soft infrastructure includes all educational, health, financial, law and order, governmental systems (such as social security), and other institutions that are considered crucial to the well-being of an economy.
  31. 31. • Hard Infrastructure It includes transport systems such as roads and highways and telecommunication services such as telephone lines and broadband systems.
  32. 32. • Critical Infrastructure It includes assets used for shelter and heating, telecommunication, public health, agricultural facilities, etc. Examples of such assets: natural gas, drinking water, medicine.
  33. 33. Financing of Public Infrastructure • Taxation Public Infrastructure may be financed through taxes, tolls, or metered user fees. Since public infrastructure is open for use by the general public, the general public pays for the infrastructure facilities through taxes.
  34. 34. • Investments • Public infrastructure require high-cost investment projects, • Returns are also extremely high. • Private companies choose to invest in a country’s infrastructure projects as part of their expansion initiatives. • For example, a power and energy company opts to build railways and pipelines in a country where it wants to refine petroleum. The investment benefits both the company and the domestic economy.
  35. 35. • Public-Private Partnerships (PPPs) Public-private partnerships (PPPs) are best described as a partnership or an arrangement between two or more private organizations and the public sector. A public-private partnership is the most popular means of financing large public sector projects.