The concept of physical infrastructure was given by Keynes during the great depression in 1929 – 1936. He said the recession was a result of a lack of aggregate demands, so to create demands it is important to spend a lot on the physical infrastructure which will create job opportunities for people as well as will help to upsurge output level. As we have already said, physical infrastructure has positive externalities, for example, when road and transport system to a remote area improve then girls and children be able to go to school and universities which in turn helps to increase the literacy rate of that area as well as employment level likewise, people in that area will be well-informed and well-educated. These people would able to select more capable leaders in the election so, that will help to grow the economy of that area.
Communication infrastructure is also important to business because it not only communicates to finalize a contract but also ensures security and provides facilities like Mobile Banking. So, like physical infrastructure, information and communications technology infrastructure (ICT) will improve trade. Access to the internet, secure internet servers and telephone lines have positive trade effects for both exporters and importers. For example, better internet amenities in rural areas will be helped people to online working like freelancing. Additionally, they will help to reduce income disparity also, it will be the best source of increasing forex reserves by earning dollars.
Trade infrastructure is another important infrastructure that helps both industries and traders. According to a World Bank report in 2013, the inefficiencies in trade and transports were costing 4-6 of GDP that was more than the cost from crippling power which was dipping growth by 3-4%. The better will be transported and road infrastructure, shorter distance will need to be covered so, that will definitely reduce the cost.
But the problem is that how a developing country invest much money because they haven’t sufficient resources to generate revenue like developed countries. So there are two methods by which a third world country can use to spend on their infrastructure, raise the public infrastructure through a tax increase or through foreign aid-funded infrastructure.
Improving infrastructure through tax financing in the short run puts strain on the output of the industrial sector. One of the basic principles of economics is that people respond to incentives. So, more taxes means they have to bear more cost, this leads to the reduction in economic growth in the short run. In the short run period financing from international borrowing has a Dutch disease kind of impact that leads to toppling in exports.
In the long-term, both international financing and increase in taxes have tantamount corollary i.e leading to macroeconomic stability and improvements in poverty level. So, our government will have to focus spending on infrastructure investments. Pakistan has a lot of potentials to attract foreign investors as well as foreign tourists, that we can use this potential fully if we have a better infrastructure. Unemployment is also one of the most unsurmountable problems in Pakistan which can be dipped with the help of huge spending in both hard and soft infrastructures.
Many of the tourists attracting areas in Pakistan like Swat, Murree and Gilgit Baltistan. Although Gilgit Baltistan is famous for its pristine lake, snow-clad peaks and robust countries all around, due to poor infrastructure whether they are physical or soft infrastructure they are unable to attract many tourists towards them. According to a report, thirty million Chinese tourists visited abroad in 2017. These tourists can be attracted towards us by improving our infrastructure.
Pakistan needs to be huge spending on infrastructure which will give impetus to improve our poor economic predicament. So government should increase infrastructure investments in those selected areas which can generate revenue more, then that will be a game-changer for us.