The economist’s enthusiasm to discuss the role of infrastructure spending in economy development was inspired from the late 1980s. Aschauer (1989a, 1989b, 1989c, 1993) predicted the critical function of infrastructure investment to promote macroeconomic development. Although some literatures were skeptical of the spillover effect of public input, the incentive effect of basic infrastructure to the economy take-off of developing countries has been proved by theory and practice. The potential benefits have also showed in their latter development. Summers and Heston (1991) found infrastructure capacity grows step by step with economic output- a 1 percent in the stock of infrastructure is associated with a 1 percent increase in gross domestic product across observed less-developed countries. Sylvie (2001) provides empirical evidence on the links between infrastructure investment and economic growth in China and indicates that geographical location and infrastructure endowment did account significantly for observed differences in growth performance across provinces.
However, the infrastructure performance is distinct among developing countries. Abundant of economy literature found, the infrastructure performance in a country is depending on the comprehensive character of government management ability, government management model and local government competitive efficiency. Henisz (2002) extended to a two-century long historical analysis of the determinants of infrastructure investment in a panel of over 100 countries. The result demonstrated that political environments that limit the feasibility of policy change are an important determinant of investment in infrastructure. The relationship between the stock of a country’s infrastructure and the growth rate of that infrastructure will be conditional on a set of country characteristics. Chief among these will be the country’s ability to provide a credible policy environment for investors. Rauch (1995) analyzed the ratio of expenditure on road and sewer, which represent the long-term benefit investment, in the total government expenditure during the first two decades of the 20 century. The result found the longer the tenure of government, the more possibility to put more public resource to infrastructure.
One of the most important empirical evidences is from Peter B. Evans (1992). In his comparative analysis of the role of the state in the development of several less developed countries, he argues that professionalization of the state bureaucracy is a necessary (though not sufficient) condition for a state to be “developmental”. He suggests a set of measureable state characteristics that can be used in empirical analysis to quantify bureaucratic professionalization. These include the percentage of bureaucratic positions that are filled by civil-service exam rather that political appointment, the percentage of those taking the civil-service exam who pass it, and the average length of tenure in a given government department (evidence of stable career-building as opposed to rent-seeking opportunism). The positive role that the governments can play in providing complementary inputs could be enhanced if the long gestation periods of infrastructural projects are well suited to bureaucrats pursuing career-building within the government departments overseeing the projects.
Another empirically study is Randolph etc. (1996), which studied factors that influence public investment in transportation and communication infrastructure. Using pooled cross-national and time-series data for 1980-86 for 27 low-and middle-income economies, he assess the influence on public infrastructure spending of a government’s objectives (especially its commitment to poverty alleviation), the nature of the domestic economy, and the flow (and composition) of external assistance. They found per capital spending on infrastructure responds most strongly to change in the level of development, the urbanization rate, and the labor force participation rate.
One part of the literatures about China’s infrastructure spending focuses on the supply side, that is, how the local governments finance the infrastructure projects. Su and Zhao (2006) outline the fiscal framework related to infrastructure spending. Peterson (2006) looks at the land leasing and land sale as the infrastructure financing option in China.
The other part of the infrastructure related literature began to discuss speculate determination factors in infrastructure spending. Zhang etc. (2007) demonstrated that the good infrastructure performance has positive effect on increasing the regional FDI. Fan and Zhang (2004) indentifies the specific role of rural infrastructure and other public capital in explaining productivity difference among regions in China. Zhang and Zou (1998) found that a higher degree of fiscal decentralization of government spending is associated with lower provincial economic growth over the past fifteen years. This consistently significant and robust result in their empirical examinations is surprising in light of the argument that fiscal decentralization usually makes a positive contribution to local economic growth. Olivier and Andrei (2000) compared the role of local governments in the economy growth and pointed that the higher degree of political centralization present in China making local governments have directly contributed to the growth of new firms, but local governments in Russia typically stood in the way through taxation, regulation or corruption. Because Chinese central government has been in a strong position both to reward and to punish local administrations, reducing both the risk of local capture and the scope of competition for rents.
Yang He, PhD in economics
Associate Professor
School of Taxation, Central University of China