INTRODUCTIONThe word infrastructure has been used in French first timein 1875.
Infrastructure is the basicphysical and organizational structureneeded for the operation of a society or enterprise. Infrastructure is the backbone of growth of any country. There are two types of infrastructure: hardinfrastructure and soft infrastructure. Hard infrastructure consists ofphysical infrastructure roads, telecommunication infrastructure. A softinfrastructure is also divided into economic and social infrastructure. Everycountry in the world wants to get maximum growth as much as possible in therace of development.
Infrastructure is one of most important for the growth ofany country. . Transportinfrastructure improves labor services and the laborforce has a positive impact on G.D.P. Public Infrastructure plays a vital roleand had the positive impact on agricultural productivity growth and ruralpoverty reduction.
According to world Economic forum, Pakistan falls in thefirst stage of development so that institutions, macroeconomic environmentinfrastructure, primary education and basic health facilities are compulsoryfor the development of the Pakistan. The energy shortagehas the negative impact on industrial growth and all other sectors of Pakistan’seconomy.According to the WorldBank’s (2010)”Doing Business report in Pakistan”, one has to go through 6procedures in 266 days with an average cost of 1829.2 % of the incomeprecipitate to get a new electricity connection as compared to Germany (one ofthe developed countries) where one has to go through 3 procedures in 17 dayswith an average cost of51.
9% of the income per capita. According to the GlobalCompetitive Index of the WEF (World Economic Forum 2010), Pakistan is 123rdrank, while 110th in infrastructure among 139 countries1. If we lookat the economic performance of Pakistan, we find that Pakistan has beensuccessful in increasing its GDP; however its growth rate has not beenconsistent in the previous decades showing large ups and downs. According toWorld Bank’s reports and Economic survey of Pakistan GDP grew by 4.83% in thedecade of70s, by 6.2% in the decade of 80s showing an upward trend, however GDPgrowth rate declined to 4.
41% in the decade of 90s2. The economyonce again regained the momentum by growing at an average rate of 5.2% from2000 to 2008, but it started growing slowly. Norton(1980)empirically proved thepositive relation between telecommunication infrastructures and economicgrowth. Communication tools such as internet and telephone are progressivelymore important for the economic development. The internet provides all types ofinformation related to the business, health, education, culture and weather.Distance learning is only possible through advanced telecommunication tools. Ithas also allowed educational institutions to deliver online lectures.
Mainpurpose of study is to explain empirical relationship between infrastructureand economic development from Pakistan.ECONOMIC THEORIESNurksehas observed that balanced growth is a good foundation for international trade,as well as a way of filling the vacuum at the periphery. He underlines theimportance of improvement in transport facilities and advocates reduction intransport costs, abolition of tariff barriers and creation of custom unions toenlarge the market in the economic and geographic sense. Un– balanced Growth, according to Hirschman, investments in strategicallyselected industries or sectors of the economy will lead to new investmentopportunities and so pave the way to further economic development.
He maintainsthat development has of course proceeded in this way, with growth beingcommunicated from the leading sectors of the economy to the followers, from oneindustry to another, from one firm to another. He regards development as achain of disequilibria that must keep alive rather than eliminate thedisequilibria of which profits and losses are symptoms in a competitiveeconomy.Statement of problemPakistanhas been facing the problem of bad infrastructure. Due to bad infrastructure,unemployment and prices of everything is increasing with every passing day inPakistan.Many policies have been offered to achieve economic growth, but yet noconsiderable results have been achieved. This study will be focused on theinfrastructure issues which are the main challenge for the economy of Pakistan.
In this study has considered infrastructure as the major source of economicgrowth in Pakistan.This study willcontribute in literature on several avenues: Objectives of the study· Toexamine the impact of infrastructure on the economic growth of Pakistan.· Tosuggest polices for the betterment of economic growth.· To construct the infrastructure index.
Research question· Main task of this study is to find outwill infrastructure has an impact on economic growth.Organizationof studySection1 consists of introduction and in 2nd section literature review willbe discuss. Researchmethodology will be discussed in section 3 and references will be explained insection 4. LITERATURE REVIEWThepros and cons of the infrastructure are vigorously debated but little is knownconclusive about its relationship to economic growth. Different theoreticalpremises, supported by different empirical examples, imply oppositepredictions.
Lots of works have been done around this area of research. Here wemention work already done.Esfahani and Ramirez (2003) analyzedstructural model of infrastructure and output growth. They used growth rate ofGDP per captia as a dependant variable and population growth rate, log ofinitial telephone per captia used as independent variables. Cross countryestimation of the model indicate that the contribution of infrastructureservices to GDP is substantial and, in general, exceeds the cost of provisionof those services. Malik, (2009) described the infrastructure of South Asia andEast Asia. In her model, she used GDP per Capita as a dependent variable andinflation, GDP ratio and political stability as independent variables.
Applyingthe fixed-effect model, the study found a positive and significant impact ofprivate participation in the energy and telecom sectors on GDP per capita andcurrent expenditures. Navarro andBerkeley(2010) in their research examined an infrastructure experiment in Mexicoto evaluate the impact of street pavement on housing values and householdoutcomes. The data for this study is pre- andpost-intervention rounds of a dedicated household survey.The baseline surveywas held in February-March 2006.Sahoo and Dash (2010) investigated the role ofinfrastructure in promoting economic growth in China.
They took the secondary dataand data source are World Bank and international financial corporation. Theyused GDP as a dependent variable and investment in private sector, publicsector, labor force and human capital as independent variables. Ishaq and Mushtaq (2011) described public investment onrural infrastructure not only increases agricultural productivity but alsoreduces poverty. They used TFP (total factor productivity) as dependantvariable and AGRI (aggregate expenditure on the crops), livestock and RHE(expenditures on rural health and education) as independent variables. Theresults showed that public investment on physical infrastructure and socialinfrastructure has contributed significantly and positively to TFP. The studysuggested that more resources should be diverted towards the development ofphysical and social infrastructure that will improve the agriculturalproductivity as well as reduce the rural poverty.Faridi et al.
(2011) described that Transport andcommunication sector having significant influence on economic growth. They tookGDP as dependant variable labor transportation and commutation as independent variables. To check theeffect of transportation and communication on economic development they usedSolow growth model. Haider et al.
(2012) interpreted the impact ofinfrastructure on economic growth of Pakistan. They used GDP as a dependentvariable and GFCF (gross fixed capital formation) and TGE (total generation of electricity) used as independentvariables, time series data has been collected from 1972 to 2009. Then theyapplied Ordinary Least Square (OLS) to find short-run relation betweenvariables and found that infrastructure is positively and significantlycontributing in Pakistan. The study suggested that government and policy makersshould focus for the development of infrastructure.Sohail et al. (2012) analyzed the impact of natural disasteron economic growth in Pakistan. They used GDP as a dependent variable andgrowth in agriculture production and growth in industrial production asindependent variables.
By using time series data from 1975 to 2010, ADF testwas used to test the stationary of the series and then OLS method was appliedto estimate the impact of natural disasters. Soneta et al.(2012) explained that infrastructure is basicphysical and organizational structures needed for the operation of society andfacilities necessary for an economy to function.
They used manufacture growthas a dependent variable and log of transportation and communication, log ofelectricity and gas distribution as independent variables. THEORITICAFRAMEWORK IN ECNOMIC RESEARCH METHODOLOGY Research DesignThe comprehensive and accurate research needs reliable dataset. This research issue is concerned with variable like electric powergeneration, length of roads, telecommunication infrastructure, health andeducation and control variables are investment and trade openness.So thesecondary source of data will be used for this research. This research studywill be based on secondary source of data consisting annual observations onPakistan and all four provinces for the period of 1972-2014. The main sourcesof data for different variables used in the study are Pakistan Economic Surveyand World Bank reports.
Type of investigationThemethodology employed by Demurger (2001) has been utilized in this study so astocapture the impact of infrastructure on economic growth of Pakistan. Demurger(2001) used extended growth equation introduced by Barro (1990). In line withDemurger this study models following growth equation:GrowthRate of GDP=f (Infrastructure, INV, TOP)OrGrowthRate of GDP=f (Physical Infrastructure, Social Infrastructure, INV, TOP) OrGrowth rate of GDP=f (electricpower generation, length ofroads, telecommunication infrastructure, education, health, investment andtrade openness)The functional form of proposed model is as followsGRGDP= b0 +?1 EPG +?2LR + ?3TEL+ ?4EDU+?5HE +?6INV+?7TOP+uiWhere GRGDP = Growth rate of (GDP)EPG = Electric generationLR = Length of roadsTEL = TelecommunicationinfrastructureEDU = EducationHE = HealthINV=InvestmentTOP=Trade OpennessIn above given equation,GRGDPis the growthrate of GDPwhich istaken as dependent variable while EG, LR, TEL, EDU, and HEare the independentvariables and INV are control variables. It is a five variableregression model in which ?0 is intercept term or constant and ?1,?2, ?3, ?4, ?5,?6and ?7arepartial regression co efficient measuring the change in mean the value of economic growth per unit change in EG, LR,TEL, EDU, HE, INV and TOP respectively.Description of variablesDependent VariableEconomic growth (GDP)Economic growth is defined as the increase in the amount of the goodsand services produced by an economy over time.
It is calculated as the percentrate of increase in real gross domestic product or real GDP. Growth iscalculated in real terms, i.e. inflation-adjusted terms, in order to net outthe effect of inflation on the price of the goods and services produced.
Ineconomics, economic growth or economic growth theory typically refers to growthof potential output, i.e., production at full employment, which is caused bygrowth in aggregate demand or observed output. Economic growth is measured asthe annual percent change of gross domestic product (GDP).Explanatory VariablesMain explanatory variable is infrastructure. Infrastructureis further divided into physical and social infrastructure.
(1)Physical InfrastructurePhysical infrastructurehas main components which areexplained below, Electric Power Generation (EPG)In his survey Garsous(2012) finds that, ceterisparibus, studiesfocusing on the energy sector are more likely to find a robust positive impactthan any other infrastructure sector. According to Planning and DevelopmentCommission of Pakistan (PDCP) that total generation of electricity is positiveassociated with GDP growth. Thus this research includes electricity generationas a proxy of energy infrastructure, to examine its impact on GDP growth rate.Electricity generation in million Kilo Watt Hours is taken toproxy the energy infrastructure.Lengthof roads (LR)Roadshave positive role in achieving national development and achieving the overallperformance and social functioning of the community. Kilometer is a unit used to measure the length of a road.
International statutemile (mi) is used in the USA; 1 mi = 1.609344 km.Total length of roads in Km is used as a proxy of transportation.Telecommunication infrastructure (TEL)According to shumaila et al (2012)telephone has positive impact of individuals, firm and Overalleconomy. Thustelecommunication infrastructure is also an important determinant of economicgrowth. That’s why this study will also include telecommunicationinfrastructure in the list of explanatory variables. In ourmodel TEL variable contains a measure of telecommunication infrastructure. Thevariable we are using here is the index of two basic infrastructure of telecom;one is teledensity, the number of telephones per 1000 inhabitants, includingonly fixed line and mobile phone subscribers and the number of internet users(per 1000 people), with the help of these two we made the index of telecominfrastructure and it stands for variable TEL.
(2)Social InfrastructureFollowing important determinants of social infrastructure are, Education(ED)A well develop educational system is a pre-requisite for economicdevelopment according to many development theories. Human capital formation isa necessary requirement to enhance economic growth and human capital formationincreased by promoting education. Thus education is necessary for economicgrowth of any country, with attainment of higher level of education economiesbecome more productive. This research study will use adult literacy rate as aproxy of education in Pakistan. Health (HE)Another determinant ofhuman capital formation is health. Health enhance the efficiency of doing a job, thus labor productivity increase due to better healthand labor productivity has an a direct impact on economic growth.
Health alsoinclude as an explanatory variable in our model. This study use longevity(average expected life) as a proxy of health.Investment(INV)According to Neoclassical growth theory,increase in investment promotes economic growth. It’s expected that investmenthas positive impact on economic growth thus investment is also an importantdeterminant of economic growth. It also includes in explanatory variables. Trade Openness(TOP)Trade openness measured by the totalvolume of foreign trade. It is expressed as the ratio of total trade to GDP.
Inother words, it is expressed as the ratio of the sum of exports and imports toGross Domestic Product.It is necessary to include this variable in themodel because international trade theory suggests that macroeconomicperformance of a country influences by international trade openness, positivelyor negatively depending upon the nature of trade.DATACOLLECTIONInthis study our main focus is just to analyze the impact of infrastructure oneconomic growth of Pakistan.
There are so many other factors which have impacton economic growth like abundance of natural resources, macroeconomicstability, social attitudes, and political stability etc. But this study willnot incorporate these variables and just considering the infrastructure as adeterminant of economic growthREFERENCESAhmad,R.I.
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