Thinking Aloud: Volume VI, Issue 12

The February, 2016 issue of Thinking Aloud is on Infrastructure and Economic Growth. The first article on “How to tackle ‘entitlement failure’ in infrastructure?” argues that several supply-side constraints related to weak infrastructure can restrict economic diversification. Some of these constraints are broadly ‘general’ in nature and some are critically ‘sector-specific’. Yet, policymakers in the developing countries are so inclined to improvement in the broad general infrastructure, i.e., enhanced supply of electricity, improvement in roads, improvement in port facilities, etc. that the development of critical sector-specific infrastructure are largely overlooked. Failure to address sector-specific infrastructure problems leads to a scenario where a large number of potential inclusive-growth enhancing sectors fail to enjoy the benefit from the improvement in broad general infrastructure, and thus end up with ‘entitlement failure’. The second article on “How does improvement in infrastructure affect economic growth?” emphasizes on how infrastructure plays a pivotal role in stimulating long-run economic growth. This article constructs an Infrastructure Index for 133 countries over the period from 1990 to 2012. In constructing the Index, the article applies PCA method on four indicators including electric power consumption, energy use, fixed broad internet subscriptions and mobile cellular subscriptions. The article uses this Index in the cross-country panel regressions and finds that improvement in such Infrastructure Index significantly boosts economic growth, and thus infrastructure development should be an essential element in the ‘inclusive growth’ agenda for a country. The 3rd page of the current issue consists of an interview of Dr. Sanjay Kathuria on linkages between infrastructure development and economic growth. 4th page includes SANEM’s 9th anniversary celebration and other events of January 2016.