Infrastructure and its impact on Economic Growth in Pakistan

Saiyed Fauzan Ali MBA (SCM) Student (10770), Iqra University, Karachi-75300, Pakistan Email: saiyedfauzan@live.com

There is a strong link between infrastructure and the economic development outcome; infrastructure affects the lives of every individual in the world, poor infrastructure causes bottleneck in the growth of an economy. In Pakistan infrastructure is poor as compared to the international standards, the improvement of infrastructure is highly important for sustaining economic growth. Pakistan has lost about 4 to 6 percent of its GDP due to insufficiency; logistical bottlenecks have resulted into a 30 percent increase in the cost of production, whereas Pakistan is facing tough competition from countries like China and India in the export market. Pakistan requires investment of around 7-9 percent of its GDP for the improvement of infrastructure. According to a report published by State Bank of Pakistan, in 2010 Pakistans target for infrastructure growth has been around $25.5 billion that is 15 percent of its GDP and according to the medium term development framework (MTDF) Public sectors investment in the infrastructure sector from 2005-10 has been around $16 billion. This funding gap between the investment required and the total investment by the public sector is expected to be filled by the private sector.

However, private sectors are concentrated on financing in the telecommunication and financial sectors, they should be encouraged to finance is other infrastructure sectors as well. Numerous studies on infrastructure have been made and empirical analyses have focused on the industrial countries due to limitation of data. All of these studies found infrastructure to be an effective factor in the economic development of a country. People living in the developing countries are aware of how poor infrastructure affects the many aspects of daily life. The World Bank investment climate assessment indicates that between 20 percent in East Asia and 55 percent in the Middle East view the shortcomings in electricity, telecommunication and transport to be a major bottleneck in doing business. If we apply this to the samples by Guatemala, Honduras and Nicaragua (Escribano and Guasch, 2006), they discovered that one percent increase in the average duration of power outage results into a decrease in productivity by 0.02 to 0.1 percent, while access to internet increases productivity by 11 to 15 percent. This shows that infrastructure quality matter for firms productivity and growth, and the output and productivity differences that we observe in different countries could be due to different endowments of such capital.