The word infrastructure has been used in French first time
in 1875. Infrastructure is the basicphysical and organizational structure
needed for the operation of a society or enterprise. Infrastructure is the back
bone of growth of any country. There are two types of infrastructure: hard
infrastructure and soft infrastructure. Hard infrastructure consists of
physical infrastructure roads, telecommunication infrastructure. A soft
infrastructure is also divided into economic and social infrastructure. Every
country in the world wants to get maximum growth as much as possible in the
race of development. Infrastructure is one of most important for the growth of
any country. . Transportinfrastructure improves labor services and the labor
force has a positive impact on G.D.P. Public Infrastructure plays a vital role
and had the positive impact on agricultural productivity growth and rural
poverty reduction. According to world Economic forum, Pakistan falls in the
first stage of development so that institutions, macroeconomic environment
infrastructure, primary education and basic health facilities are compulsory
for the development of the Pakistan. The energy shortage
has the negative impact on industrial growth and all other sectors of Pakistan’s
According to the World
Bank’s (2010)”Doing Business report in Pakistan”, one has to go through 6
procedures in 266 days with an average cost of 1829.2 % of the income
precipitate to get a new electricity connection as compared to Germany (one of
the developed countries) where one has to go through 3 procedures in 17 days
with an average cost of51.9% of the income per capita. According to the Global
Competitive Index of the WEF (World Economic Forum 2010), Pakistan is 123rd
rank, while 110th in infrastructure among 139 countries1. If we look
at the economic performance of Pakistan, we find that Pakistan has been
successful in increasing its GDP; however its growth rate has not been
consistent in the previous decades showing large ups and downs. According to
World Bank’s reports and Economic survey of Pakistan GDP grew by 4.83% in the
decade of70s, by 6.2% in the decade of 80s showing an upward trend, however GDP
growth rate declined to 4.41% in the decade of 90s2. The economy
once again regained the momentum by growing at an average rate of 5.2% from
2000 to 2008, but it started growing slowly. Norton(1980)empirically proved the
positive relation between telecommunication infrastructures and economic
growth. Communication tools such as internet and telephone are progressively
more important for the economic development. The internet provides all types of
information related to the business, health, education, culture and weather.
Distance learning is only possible through advanced telecommunication tools. It
has also allowed educational institutions to deliver online lectures. Main
purpose of study is to explain empirical relationship between infrastructure
and economic development from Pakistan.
has 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 the
importance of improvement in transport facilities and advocates reduction in
transport costs, abolition of tariff barriers and creation of custom unions to
enlarge the market in the economic and geographic sense.
– balanced Growth, according to Hirschman, investments in strategically
selected industries or sectors of the economy will lead to new investment
opportunities and so pave the way to further economic development. He maintains
that development has of course proceeded in this way, with growth being
communicated from the leading sectors of the economy to the followers, from one
industry to another, from one firm to another. He regards development as a
chain of disequilibria that must keep alive rather than eliminate the
disequilibria of which profits and losses are symptoms in a competitive
Statement of problem
has been facing the problem of bad infrastructure. Due to bad infrastructure,
unemployment and prices of everything is increasing with every passing day in
Pakistan.Many policies have been offered to achieve economic growth, but yet no
considerable results have been achieved. This study will be focused on the
infrastructure issues which are the main challenge for the economy of Pakistan.
In this study has considered infrastructure as the major source of economic
growth in Pakistan.
This study will
contribute in literature on several avenues:
Objectives of the study
examine the impact of infrastructure on the economic growth of Pakistan.
suggest polices for the betterment of economic growth.
To construct the infrastructure index.
Main task of this study is to find out
will infrastructure has an impact on economic growth.
1 consists of introduction and in 2nd section literature review will
methodology will be discussed in section 3 and references will be explained in
pros and cons of the infrastructure are vigorously debated but little is known
conclusive about its relationship to economic growth. Different theoretical
premises, supported by different empirical examples, imply opposite
predictions. Lots of works have been done around this area of research. Here we
mention work already done.
Esfahani and Ramirez (2003) analyzed
structural model of infrastructure and output growth. They used growth rate of
GDP per captia as a dependant variable and population growth rate, log of
initial telephone per captia used as independent variables. Cross country
estimation of the model indicate that the contribution of infrastructure
services to GDP is substantial and, in general, exceeds the cost of provision
of those services.
Malik, (2009) described the infrastructure of South Asia and
East Asia. In her model, she used GDP per Capita as a dependent variable and
inflation, GDP ratio and political stability as independent variables. Applying
the fixed-effect model, the study found a positive and significant impact of
private participation in the energy and telecom sectors on GDP per capita and
(2010) in their research examined an infrastructure experiment in Mexico
to evaluate the impact of street pavement on housing values and household
outcomes. The data for this study is pre- and
post-intervention rounds of a dedicated household survey.The baseline survey
was held in February-March 2006.
Sahoo and Dash (2010) investigated the role of
infrastructure in promoting economic growth in China. They took the secondary data
and data source are World Bank and international financial corporation. They
used GDP as a dependent variable and investment in private sector, public
sector, labor force and human capital as independent variables.
Ishaq and Mushtaq (2011) described public investment on
rural infrastructure not only increases agricultural productivity but also
reduces poverty. They used TFP (total factor productivity) as dependant
variable and AGRI (aggregate expenditure on the crops), livestock and RHE
(expenditures on rural health and education) as independent variables. The
results showed that public investment on physical infrastructure and social
infrastructure has contributed significantly and positively to TFP. The study
suggested that more resources should be diverted towards the development of
physical and social infrastructure that will improve the agricultural
productivity as well as reduce the rural poverty.
Faridi et al. (2011) described that Transport and
communication sector having significant influence on economic growth. They took
GDP as dependant variable labor
transportation and commutation as independent variables. To check the
effect of transportation and communication on economic development they used
Solow growth model.
Haider et al. (2012) interpreted the impact of
infrastructure on economic growth of Pakistan. They used GDP as a dependent
variable and GFCF (gross fixed capital
formation) and TGE (total generation of electricity) used as independent
variables, time series data has been collected from 1972 to 2009. Then they
applied Ordinary Least Square (OLS) to find short-run relation between
variables and found that infrastructure is positively and significantly
contributing in Pakistan. The study suggested that government and policy makers
should focus for the development of infrastructure.
Sohail et al. (2012) analyzed the impact of natural disaster
on economic growth in Pakistan. They used GDP as a dependent variable and
growth in agriculture production and growth in industrial production as
independent variables. By using time series data from 1975 to 2010, ADF test
was used to test the stationary of the series and then OLS method was applied
to estimate the impact of natural disasters.
Soneta et al.(2012) explained that infrastructure is basic
physical and organizational structures needed for the operation of society and
facilities necessary for an economy to function. They used manufacture growth
as a dependent variable and log of transportation and communication, log of
electricity and gas distribution as independent variables.
FRAMEWORK IN ECNOMIC
The comprehensive and accurate research needs reliable data
set. This research issue is concerned with variable like electric power
generation, length of roads, telecommunication infrastructure, health and
education and control variables are investment and trade openness.So the
secondary source of data will be used for this research. This research study
will be based on secondary source of data consisting annual observations on
Pakistan and all four provinces for the period of 1972-2014. The main sources
of data for different variables used in the study are Pakistan Economic Survey
and World Bank reports.
Type of investigation
methodology employed by Demurger (2001) has been utilized in this study so as
tocapture the impact of infrastructure on economic growth of Pakistan. Demurger
(2001) used extended growth equation introduced by Barro (1990). In line with
Demurger this study models following growth equation:
Rate of GDP=f (Infrastructure, INV, TOP)
Rate of GDP=f (Physical Infrastructure, Social Infrastructure, INV, TOP)
Growth rate of GDP=f (electricpower generation, length of
roads, telecommunication infrastructure, education, health, investment and
The functional form of proposed model is as follows
GRGDP= b0 +?1 EPG +?2
LR + ?3TEL
GRGDP = Growth rate of (GDP)
EPG = Electric generation
LR = Length of roads
TEL = Telecommunication
EDU = Education
HE = Health
In above given equation,GRGDPis the growthrate of GDPwhich is
taken as dependent variable while EG, LR, TEL, EDU, and HEare the independent
variables and INV are control variables. It is a five variable
regression model in which ?0 is intercept term or constant and ?1,
?2, ?3, ?4, ?5,?6and ?7are
partial 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 variables
Economic growth (GDP)
Economic growth is defined as the increase in the amount of the goods
and services produced by an economy over time. It is calculated as the percent
rate of increase in real gross domestic product or real GDP. Growth is
calculated in real terms, i.e. inflation-adjusted terms, in order to net out
the effect of inflation on the price of the goods and services produced. In
economics, economic growth or economic growth theory typically refers to growth
of potential output, i.e., production at full employment, which is caused by
growth in aggregate demand or observed output. Economic growth is measured as
the annual percent change of gross domestic product (GDP).
Main explanatory variable is infrastructure. Infrastructure
is further divided into physical and social infrastructure.
Physical infrastructurehas main components which are
Electric Power Generation (EPG)
In his survey Garsous(2012) finds that, ceterisparibus, studies
focusing on the energy sector are more likely to find a robust positive impact
than any other infrastructure sector. According to Planning and Development
Commission of Pakistan (PDCP) that total generation of electricity is positive
associated with GDP growth. Thus this research includes electricity generation
as a proxy of energy infrastructure, to examine its impact on GDP growth rate.
Electricity generation in million Kilo Watt Hours is taken to
proxy the energy infrastructure.
of roads (LR)
have positive role in achieving national development and achieving the overall
performance and social functioning of the community.
Kilometer is a unit used to measure the length of a road.International statute
mile (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. Thus
telecommunication infrastructure is also an important determinant of economic
growth. That’s why this study will also include telecommunication
infrastructure in the list of explanatory variables.
model TEL variable contains a measure of telecommunication infrastructure. The
variable we are using here is the index of two basic infrastructure of telecom;
one is teledensity, the number of telephones per 1000 inhabitants, including
only 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 telecom
infrastructure and it stands for variable TEL.
Following important determinants of social infrastructure are,
A well develop educational system is a pre-requisite for economic
development according to many development theories. Human capital formation is
a necessary requirement to enhance economic growth and human capital formation
increased by promoting education. Thus education is necessary for economic
growth of any country, with attainment of higher level of education economies
become more productive. This research study will use adult literacy rate as a
proxy of education in Pakistan.
Another determinant of
human capital formation is health.
Health enhance the efficiency of doing a job, thus labor productivity increase due to better health
and labor productivity has an a direct impact on economic growth. Health also
include as an explanatory variable in our model. This study use longevity
(average expected life) as a proxy of health.
According to Neoclassical growth theory,
increase in investment promotes economic growth. It’s expected that investment
has positive impact on economic growth thus investment is also an important
determinant of economic growth. It also includes in explanatory variables.
Trade openness measured by the total
volume of foreign trade. It is expressed as the ratio of total trade to GDP. In
other words, it is expressed as the ratio of the sum of exports and imports to
Gross Domestic Product.
It is necessary to include this variable in the
model because international trade theory suggests that macroeconomic
performance of a country influences by international trade openness, positively
or negatively depending upon the nature of trade.
this study our main focus is just to analyze the impact of infrastructure on
economic growth of Pakistan. There are so many other factors which have impact
on economic growth like abundance of natural resources, macroeconomic
stability, social attitudes, and political stability etc. But this study will
not incorporate these variables and just considering the infrastructure as a
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