The impact of public infrastructure on regional income disparities (1995-2002)
Date
2006-03
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Abstract
Infrastructure plays an important role in a country's economy, a critical index of economic vitality. Furthermore, its absence or failure introduces a major obstacle to growth and competitiveness. With the government's fiscal deficit (3.8 percent of GDP in 2004), deficiency of private investment (20% of GDP or less), and the constant political instability facing the Arroyo administration, the government is faced with the challenge of determining which public investments should be prioritized and in which regions should be the allocation be properly placed.
The paper aims to assess the effect of public investment on Gross Regional Domestic Product growth and to investigate if differences in government investment in infrastructure contribute significantly to differences in Gross Regional Domestic Product. The results showed a positive correlation between the General Infrastructure indicator and the standardized Gross Regional Domestic Product while the negative correlation of the employment rate with the standardized Gross Regional Domestic Product showed higher income disparity among the Philippine regions. Moreover, Economic Infrastructure Indicators (composed of transport, communication, wafer supply, energy supply and irrigation development) and Social Infrastructure Indicators (composed of health an education) have different impacts on standardized GRDP. The former has a positive coefficient while the latter has a negative coefficient.
The study shows that there are substantial disparities in infrastructure levels from the different regions. Also, there is a tendency for infrastructure investments to cluster at the metropolitan areas. Indeed, differences in infrastructure levels have significant effects on regional income disparities.
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Keywords
Public infrastructure, Government expenditure, Urban planning, Urban development, Public debt