Monday 16 January 2017

How effective is government infrastructure spending?

Here is one interesting and reasonable argument about the possible US government budget expansion on infrastructure building and the author is not optimistic about Trump's plan: https://www.ft.com/content/cf700fad-6e87-3b32-867c-8686853c76f1

I think that there is one crucial function of infrastructure building that infrastructure could reduce the significance of geographical advantages. However, sometimes such advantages cannot be reduced by human efforts, at least it requires an enormous amount of resources and has a very long cost recovering period. For example, the Panama Canal and the Grand Canal are great infrastructure programmes that connect regions tightly and reduce transport costs. Moreover, there are many types of geographical advantages that could be reduced by infrastructure building, besides the cost of transportation.

The energy could be another very important factor in the modern era. Some regions do not have enough fossil fuel resources to generate energy for the locals; therefore, they can receive the resources from other regions, which requires a long term spending, or they can build alternative energy factories to generate energy locally, or they can receive electricity from the national grid. These solutions are all infrastructure programmes. In addition, some regions have very tough environment conditions, for example, Israel and Saudi Arabia have very limited water resources, they are doing many infrastructure projects around the water resource issue, including improve the efficiency of using water resources and gaining more water resources by desalination.

Overall, we can see that the infrastructure can be used to balance the geographical differences to some extent and these differences could be grouped into two categories: cost of distance and cost of resource; however, as we can see from the current world, infrastructure cannot completely remove the geographical differences and often the geographical differences play a crucial role in differentiating the economic growth rates across different regions.

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