Introduction

The importance of infrastructure for developing countries cannot be overstated—it is a major driver for growth and poverty reduction. For example, the lack of adequate transport, water, and energy facilities can adversely affect the development of existing industries and may preclude new entrants. An efficient transport and communication infrastructure provides overall mobility for goods and people alike, contributes to reducing input and transaction costs, and enhances the efficiency of markets. Local infrastructure, which may have significant spillover effects, spurs local economic activities while the network characteristics of infrastructure enhance the connectivity of regions and promote domestic integration. The key role of infrastructure in economic growth cannot be overstated. A recent joint study substantiates the decisive role that infrastructure has played in growth and poverty reduction in East Asia and the Pacific (ADB, JBIC, and World Bank 2005).

This chapter takes off from sources-of-growth studies in which application of the growth diagnostic framework points to the possibility that inadequate infrastructure is constraining economic growth. This chapter analyzes specific factors responsible for the lack of infrastructure and then provides policy recommendations to help overcome those constraints. It attempts to provide an empirical basis for the often-claimed key role of infrastructure in fostering economic growth. Thus, the chapter investigates whether poor infrastructure acts as a binding constraint to economic growth. The basis for the popular claim that infrastructure matters to economic growth seems to be anecdotal and founded more on conviction than on empirical analysis.