Infrastructure and Inclusive Growth

Empirical evidence from Asia and the rest of the world shows the positive role of infrastructure in improving the quality of life, especially for the poor. Infrastructure is more than an input to businesses; its services also meet people’s basic needs and wants. Straub and Terada-Hagiwara (2011) make this point and further note that utility services can account for an important part of household spending: Water utility services, for instance, may account for a significant fraction of poor households’ budget. Although they only make up 0.8% of the household budget of the poor in the PRC and 3.2% in Cambodia, they account for 16%–33% of total spending of the poorest households in Indonesia. Similarly, energy expenditures can account for significant shares of the total spending of the poorest families, ranging from 2.9% in Viet Nam to 7.6% in the PRC, 9% in Indonesia, and 24% in Cambodia. For this reason alone, a more efficient provision of infrastructure services, allowing for lower charges, can raise the real incomes, including for the poor. Infrastructure can have a strong impact on the incidence and depth of poverty by supporting inclusive growth, i.e., economic growth that can facilitate a meaningful and sustainable poverty reduction (World Bank, 2009). Infrastructure affects enterprise productivity, and a lack of access to utility services such as electricity is a significant barrier to doing business, especially for small firms. ICT services can also be a powerful stimulus to increase productivity across sectors, which in turn can lead to increased employment and income levels and a reduction in poverty.