Role of infrastructure in the economy, Microeconomics


Economic Infrastructure produces services that directly facilitate and are basic to the carrying out of a wide variety of economic activities. Infrastructure contributes to development both directly and indirectly. The output or the final products of different segments of infrastructure is the direct effect. Infrastructure's indirect contribution is as an intermediate input that enhances the productivity of all inputs of different sectors. For example, the quality of labour is enhanced by human capital improvements. Similarly, productivity of physical capital is improved by power and transportation etc.    

The linkages between economic infrastructure and development are as follows: 

•  Infrastructure lowers the cost of producing a given level of output or, alternatively, can increase the amount of output produced by all other inputs for a given cost.  

•  Infrastructure enables markets to work better. Transactions are made less costly and this increases the benefits  of trade. For example, advances in transport and communications have considerably lowered storage costs by permitting producers to respond rapidly to changing consumer demands even in international trade. (this  is referred to as "modern logistics management"). 

•  Unit costs tend to rise due to unreliable or inaccessible public infrastructure. Both small and big firms spend a significant portion of their expenditure on buying infrastructure services and suffer when these are not available. Electricity shortage has been a notorious constraint faced by expanding business units.  


Posted Date: 11/10/2012 7:30:16 AM | Location : United States

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