Does Improving Transport Infrastructure help a Country’s Development?

Economics, Medium Reads
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With huge infrastructure plans being proposed internationally, whether that is HS2 or the Green New Deal, one wonders whether or not transport infrastructure is actually beneficial for countries. In order to look at how transport infrastructure and the development of a nation correlate, it is vital to first define what development means. Insofar as countries that are more developed generally have a population that is better off socially and economically, development is a representation of the level of wellbeing and welfare that people in a certain country can obtain.  The existence of a correlation between transport infrastructure and national development can be determined by plotting an index that aggregates transport infrastructure in a country against one that measures a country’s development. We can compile a composite index of transport infrastructure compared against the Inequality-adjusted Human Development Index (IHDI). 


The transport index is based on Donaubauer, Meyer and Nunenkamp’s 2014 Infrastructure Index, taking into account three factors, (1) the quality and density of roads and rails as well as the number of cars, (2) the total carrying capacity of a country’s ships relative to its area and to the total world carrying capacity, and (3) the volume and number of carrier departures and air freight relative to the country’s size and population. The IHDI measures wellbeing by looking at one’s standard of living based on Gross National Income per capita. It also recognises the conditions necessary to achieve this standard and factors them into the index: education (expected and mean years of schooling), being alive (life expectancy at birth), and equality (as measured by a coefficient of human inequality). 


From this dataset of over 100 countries, we can see that there is broad but middling correlation, with a correlation coefficient of only 0.555043. However, when looking at the more meaningful question of causation, transport infrastructure has various benefits economically, beyond the fact of people being employed to build it. Niedzielski and Malecki (2012) argue that “strategic infrastructure” like railways can be “used in support of economic growth” by allowing labour and capital to move around. For example, the London Metropolitan Railway was hugely beneficial, not only in codeveloping real estate and suburbs such as in the “Metroland” of northwest London and allowing the “working people to live in decent conditions” (Wolmar 2004), but also have “rapid, inexpensive means” (Bobrick 1981) of travelling to work. This is especially helpful for firms, which can take advantage of agglomeration economies i.e. transport infrastructure allows companies to expand their areas of operations. That allows more choice of materials and labour, allowing for competition that decreases the costs of production. A similar effect is true of their outputs, where they can now sell to more people via new routes. A further impact is that improved transport infrastructure allows for complementary firms to cluster in a certain area, attracting more customers than each company would be able to individually, as well as sharing services like distribution centres, maximising economies of scale. It is because of this increase in labour mobility and efficiency of distribution that “businesses usually rank deficient infrastructure as an important barrier to their operations and growth” (Straub 2008). 


All of these benefits go beyond national borders, and where infrastructure such as ports and airports connect different countries, they apply likewise. In addition to that, transport infrastructure allows for vast trade networks to be created. This started off as the European colonial empires moving around the supplies and commodities they had extracted from other areas and has grown into a crucial part of international trade and supply chains. This is especially vital in the countries that are developing, because their industries centre around the primary and secondary sector. Khachatryan and Casavant (2011) point out that “export competitiveness in agricultural commodities trade” “relies on timely and efficient transportation of crops”. Foreign Direct Investment is affected similarly, as “good infrastructure increases the productivity of investments and therefore stimulates FDI” (Asiedu 2002). 


The comparison is to nations which do not have good transport infrastructure, because of their lack of investment in such infrastructure or their geographical location. Limão and Venables (2001) show the staggering impact this can have. For example, landlocked countries face 50% higher transport costs than similar coastal ones, and where shipping does occur, there are still large cost differentials. Shipping from Durban to Maseru, 347km away, costs $7500, triple what it costs to ship to Lusaka, a mere 1,600km away, because of this infrastructure advantage. These large costs are therefore going to be an important consideration for investments. As such, it would seem that insufficient infrastructure can act as bottlenecks on development, ones that manifest themselves in a comparison between the economic growth of China during the early 2000s, which put 9% of its GDP in infrastructure, and the hampered growth of some South American and African states, many of which invested only 2%-4%. As such, all of this adds to economic growth, which translates into national development as defined above. 


However, even in the best case where all this economic growth exists, it needs to be taken into account how accessible this is and therefore translates into human development. Graham (2000) posits that infrastructure development is increasingly often “customised precisely to the needs of powerful users and spaces, whilst bypassing the less powerful”. This is because of the general trend towards privatisation which has meant that transport infrastructure projects are viewed as individual developments by investors, rather than part of larger networks that may not arise and allow a good return on investment. This causes a collective action problem where no one is willing to fund large scale systems of transport infrastructure, and instead “unbundled” transport systems are built that only cater to those who can fund them. An example of this can be seen in the UK, where the London Docklands have a huge amount of private transport infrastructure, with a light rail system, its own airport, highways and underground transport systems. This is exacerbated by the demise of comprehensive urban planning due to this similar vein of liberalisation, leading to project specific development rather than a broader conception of what an area should look like. This results in Business Improvement Districts that splinter from the main city, and in fact can raise taxes to be spent only within the area. To the extent that any of the economic benefits above apply, they only apply surrounding these affluent metropolitan areas, and consequently, the unequal distribution of capital is aggravated. Given the tendency for this infrastructure to cluster, there is also a diminishing marginal utility to having yet another railroad in these infrastructure-saturated locales. More than that, they actively exclude the less well off from trying to be part of such areas, whether through a private security force and cordons in the Docklands, or simply by the ability for BID councils to enact eminent domain restrictions, which again makes this standard of living harder to access. 


The overall impact on development thus seems to be mitigated to a large extent, insofar as those who would be benefitted the most are often the ones who are not just ignored, but actively ostracised with the construction of transport infrastructure. This is by no means to suggest that transport infrastructure cannot be done well, nor is it to say that the aggregate benefits of the aforementioned economic growth do not at least partially raise the welfare of all people. But it does show that transport infrastructure is in no way a determinative factor. Very simply, such a claim would be equivalent to a claim that geography defines development, insofar as transport infrastructure is simply a way of altering the geography of the land. That assertion has time and time again been disproved both theoretically and anecdotally, perhaps most prominently by the great divergence between China and Europe, from China’s position of economic prosperity to one of comparative weakness. Even considering some of the new ports and roads built within Europe at that time does not fully explain the drastic shift. 


In the modern day, there are examples of geography and infrastructure not being vital. The French town of Montchanin, despite its location on the Paris-Lyon train line, has progressed little since thirty years ago. Between 2000-2004, Portugal, Greece, Spain and Italy all invested the highest percentage of their GDP into infrastructure in Europe, and yet they are most economically troubled nations in the EU now. Therefore, there are clearly other factors involved. Given that all of the economic benefits mentioned previously rely on some form of trade or exchange, it is worth noting that transactions do not occur just when the physical possibility of such transaction is made available by infrastructure, but also requires capital to buy with, institutions to protect the rights of the buyer and the seller, and most crucially, an actual incentive and demand. One alternative factor is the idea of inclusive institutions that protect the rule of law and property rights, as seen in De Soto’s writings on informal economies or Acemoglu’s Why Nations Fail. They fulfil two of the more fundamental prerequisites: provide formal property rights that encourage buying things without fear of arbitrary confiscation, and allow people to use their property equity to get funds and loans for development. 


Ultimately, although there might be some correlation, that can be explained by realising that it could be development that allows increasing amounts of transport infrastructure to be built, rather than the other way around. The actual benefit to development is limited because of the distribution of the economic gains. It is also overshadowed by other factors, which address the more critical premises of trade. As such, transport infrastructure only correlates with infrastructure when it is available in such limited amount that it acts as a bottleneck on the opportunity for development. Beyond this minimum necessary threshold, the marginal utility transport infrastructure brings declines, and thus its correlation to development.

Bibliography 

Richardson, Tim; Jensen, Ole (2008): How mobility systems produce inequality: making mobile subject types on the Bangkok Sky Train. Built Environment. 

Graham, Stephen (2000): Constructing premium network spaces: reflections on infrastructure networks and contemporary urban development.International Journal of Urban and Regional Research

Larkin, Brian (2013): The Politics and Poetics of Infrastructure. Annual Review of Anthropology

Niedzielski, Michael; Malecki, Edward (2012): Making Tracks: Rail Networks in World Cities. Annals of the Association of American Geographers. 

Ravalet, Emmanuel (2014): Is transport infrastructure responsible for economic development? Mobile Lives Forum

Donaubauer, Julian; Meyer, Birgit, Nunnenkamp, Peter (2014): A New Global Index of Infrastructure: Construction, Rankings and Applications.Kiel Working Papers 

Rodrigue, Jean-Paul; Notteboom, Theo (2017): Transportation and Economic Development. The Geography of Transport Systems 

Khachatryan, Hayk; Casavant, Ken (2011): The Relationship Between US Transport Infrastructure Improvements and International Trade.Freight Policy Transportation Institute Papers

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