Ample research has been conducted to define the role of rural infrastructure in Bangladesh's economic growth and poverty alleviation. Arguably, studies have produced tremendous impact on policymaking - revealing that infrastructure and poverty are inversely related.
Eminent economists Dr. Raisuddin Ahmed and Dr. Mahabub Hossain produced excellent research works on the impacts of infrastructure in rural development. Pioneered by the International Food Policy Research Institute (IFPRI), such research works eventually indicated to key policy directions.
In economic literature, the term 'infrastructure' has been used in different shades of connotations. It has also been used with social overhead capital interchangeably. Some studies consider public utilities, ports, water supplies, and electricity as infrastructure while others include in the category transport, public utilities, schools, hospitals and even the situation of law and order. However, a demarcation line can be drawn between social overhead capital and directly productive activities: (a) infrastructural services facilitate generation of economic activities; (b) the services are not imported; and (c) the investments are marked by lumpiness. Besides, infrastructure also embraced agricultural research, extension, irrigation and drainage in the 1960s.
A large amount of research materials on infrastructure are now available. Such studies mostly deal with the advantages of access to better infrastructure - and, to a lesser degree, the role of infrastructure in economic development. Some researchers argue that governmental spending on productive investments like agricultural, Research and Development (R&D), irrigation, rural infrastructure (including roads and electricity), and rural development can contribute to poverty alleviation along with growth in agricultural productivity. Others have shown that the rates of return on capital are enhanced by paved roads and electricity. They also suggest that both types of infrastructure are highly complementary with other physical and human capital though may face rapid diminishing returns if increased in isolation.
Famous agricultural economist Vernon Wesley Ruttan has explained the agricultural prosperity of the Western hemisphere and Australia through the Frontier Model - physical and institutional infrastructure emerging at the centre of his explanation. Former IFPRI head John Mellor argues that future of India's economic development rests on infrastructural development. He also mentioned how development of infrastructure results in larger multiplier effects arising from agricultural growth and the expenditure of agricultural income on consumption.
Dr. Raisuddin Ahmed and Dr. Mahabub Hossain had earlier dealt with the economics of infrastructural development. Drawing heavily on their seminal study, some observations on the issue is presented berow:
COST OF MARKETING: Infrastructure reduces the cost of marketing of agricultural products. One study shows that farmers in Africa receive only 30 to 50 per cent of the final price paid by consumers, compared to the 70 to 85 per cent received by Asian farmers. About two-thirds of this difference is adduced to the substantial difference in transportation costs between countries in the two continents.
COMPARATIVE ADVANTAGE: Marketing margins have widespread consequences for the comparative advantage in the international market. Extremely high marketing margins in agricultural products, coupled with production costs, could make FOB (Free on Board) prices higher than competing countries since internal transport costs greatly increase domestic price of imported products and reduce the scope for trade - when added to Cost Insurance and Freight (CIF) prices. Likewise, differences in marketing costs affected by infrastructure could both positively and negatively impact on the expansion of internal or external trade.
PRICE TRANSMISSION: The role of infrastructure in the process of transmission of prices is no less important. Lack of infrastructure facilities is considered a perennial source of price discrimination, market fragmentation and information asymmetry. A study shows that short-run effect of devaluation of the exchange rate is reflected in prices at farm level.
LABOUR MARKET IMPERFECTION: In developing countries, labour is the key factor in production of agricultural goods and serves as an influential source of income for the households. Imperfections of the rural workforce, particularly the interlocking of such market with land, credit and product markets, have been traditionally viewed as a barrier to income and employment generation in rural areas. The lack of infrastructure causes these imperfections.
INFRASTRUCTURE AND DIFFUSION OF TECHNOLOGY: Infrastructure also results in the diffusion of technology. Workers travel frequently in areas where transport and communications function better. Generally, demonstration plots or extension offices are selected in those areas where better infrastructure is present. Modern technology package originates in the urban areas and a quicker communication system helps them reach farmers at the shortest possible time.
HOUSEHOLD CONSUMPTION: Services are hardly available in areas with weak infrastructure and hence consumption of such services and products remain relatively low in such places. However, the latent demand for these services becomes effective demand as soon as infrastructure develops.
NON-FARM ACTIVITIES: Better infrastructural facilities promote rural non-farm activities. Business, trade and services expand when non-agricultural labour market develops with the growth of roads and electricity.
Though infrastructural facilities rarely make a direct effect on employment and income generation, these indirectly create conducive environment for the growth of non-farm activities.