Infrastructure and regional development

In general, infrastructure is a combination of physical and organisational structure provides links to services, markets, and jobs and facilitates quality of life (PRIF 2013). It is considered as a set of attributes which contributes to regional development as a production factor along with labour and capital (Rietveld 1989) and serve other industries, encourage new investment, facilitates economic and social activities, and generate a range of externalities in production and consumption (StudyMode 2013). Hall (2002) asserts that positive institutional willingness is required for infrastructure provision in a region, and once infrastructure is provided future investment and effective utilisation of infrastructure follows it as consequences. However, infrastructure alone cannot contribute to regional development rather it is a facilitating tool for creating an environment for

regional development. Gaffikin and Morrissey (2001) describe appropriate physical infrastructure as hardware for sustainable regeneration of a region, along with education, training, business attraction and social inclusion as software, and cultural synergy or desires as heartware. Infrastructure creates links among the social, economic and environmental matrix of a region, actively engage and provide rationales for other stakeholders in the region to contribute in regional development efforts. Government strategy for investing in infrastructure has two dimensions. In a demand driven strategy, often referred to as a 'passive strategy', the government may provide infrastructure to resolve the bottlenecks of the private sector or market (Rietveld 1989). In a proactive strategy, the government may consider infrastructure as an engine for the regional development, to promote the potential sector of the region.

Transport infrastructure is one of the important infrastructures for regional development. The influence of transport infrastructure and its interplay with other regional development factors is always an intriguing issue for regional development, which needs to be evaluated (Rietveld 1989). Seaports, canals, airports, railway lines, railway stations and highways are considered important transport infrastructure (Rietveld 1994). This infrastructure is generally provided as collective input into production. A great deal of literature recognises the positive impacts of transport infrastructure on regional development (Ferrari et al. 2012; OECD 2002; Rietveld 1989; Rietveld 1994), though some authors note that providing improved transport infrastructure to peripheral regions, which does not have sufficient comparative advantage, may intensify market competition in these regions that may further result in wiping out of existing industries (Fujita & Mori 1996; Martin & Rogers 1995).

Besides human capital and innovation, transport infrastructure as an endogenous factor influences regional development, but research

suggests that it should be provided in an integrated way for the region to synchronise with the regional potential and demands and to avoid duplication (African Development Bank 2013; Infrastructure Partnerships Australia 2007).

The improvement of transport infrastructure increases efficiency in the supply chain and reduces transport costs, which may have two types of effects (Rietveld 1989). On the one hand, it can make export products cheaper, which can provide opportunities to expand total production and, because of economies of scale, ultimately increase production and employment in the region. On the other hand, lower transport costs can also make imported products cheaper. In that case, domestic products can partially be substituted by import products which may create diseconomies of scale and in turn may decrease production and employment in the regions.

From a transport infrastructure modelling perspective, Rietveld (1994) suggests that integrated urban land use - transport infrastructure supply models may yield limited impacts at the intraregional level because of the locational behaviour of firms having interregional orientation. Entrepreneurs’ perceptions suggest that a positive impact may increase with the supply (Adaman & Devine 2002) of transport infrastructure at intraregional level. It appears that having collaboration and innovation among intraregional organisations is crucial to capture the benefits of transport infrastructure, since the entrepreneurs’ perception is positive. Transport infrastructure has a substantial influence on the productivity of other production factors at the interregional level (Rietveld 1994).

An OECD (2002) report identifies that governments allocate resources to transport infrastructure investment in the belief that transport infrastructure has significant impacts on regional economies. It is important, but extremely difficult, to evaluate the relationship between transport

infrastructure investment and regional development. Some case studies in the report such as ‘Berrima and Mittagong Bypass in highway system’ in Australia and ‘Kristiansund Project on road tunnels and bridges system’ in Norway pinpoint clear objectives and specific strategic needs for infrastructure projects concerning regional development. It is also important to conduct ex-ante and ex-post evaluations for transport infrastructure projects which would further help policy coordination and infrastructure plans for the regions.

In comparison to other types of transport infrastructure, port infrastructure may have a greater contribution to regional economies, as they generate stronger externalities in the hinterland (Clark, Dollar & Micco 2004). Ferrari (2011) states that port infrastructure is now considered to be common capital for larger regions beyond the port-region. The benefits of a port are increasingly being spread to the wider world, leaving negative impacts in host port regions. The positive benefits of port infrastructure to the host regional economy have slowed down recently because of the change in the shipping market. The introduction of containers and their extensive handling systems reduce employment opportunities in the host port region (Brooks & Cullinane 2007; Musso, Benacchio & Claudio 2000).

Overall, infrastructure should be regarded as one of the essential and integral structural elements to regional development that facilitates liberating the potential of a region and operationalising economy and society. The objective of a sustainable infrastructure strategy should support economy, care environment, encourage innovation and boost quality of life in the region. Promoting innovation in a systematic way and participating in it is the cornerstone for effective infrastructure strategy to regional development.