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Role of Infrastructures in Economic Growth

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Auscher (as cited in Munnel,1992) claims that there is a resilient positive correlation between infrastructures and economic growth. Infrastructures directly affect the individuals by providing essential resources such as transportation, water, energy, and telecommunication. Given its significance, infrastructures represents as a tangible asset and an essential to a country but its main drawback is its high capital cost. Hence, infrastructure investment are under the standardization of the government. Despite the drawback, one of the factors on why the government must invest in infrastructures is its long-term cash flow predictability which often has inflation protection. Since its cash flow is predictable and definite, infrastructures are expected to provide the solution to the inconsistencies of the long-term liabilities of the government.

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Other than that, infrastructures provides services that contribute to the economic cycle of a country for it is relatively inelastic compared to the other sectors. Moreover, some economic infrastructures such as power generation, electricity transmission, and toll roads can be supervised, thus, raising the return predictability at an aggregate level. According to Munnel (1992), prominent Economists claimed that a country must allocate an investment for an increase in infrastructure spending because economists believed that infrastructures are the foundation for the economic growth of a country for it serves as an asset rather than being a liability (pp. 189-198). In addition, with stabilized infrastructures, there will be great economic returns, thus, providing better services for the citizens of a country (Badré,2014). Furthermore, infrastructures can open more opportunities for new businesses to arise, thus, raising the prospects of commerce in the country. Both developed and developing countries are still putting an effort to bridge the infrastructure gap to provide a better and sustainable community. In context, well developed countries in the Middle East are investing on their infrastructures so that it can serve as the backbone of their economic growth.

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