What Effect Does Infrastructure Development Have on Economic Growth?

Infrastructure can be defined in a number of ways depending on the policy discussion; in general, however, the term refers to longer-lived, capital-intensive systems, and facilities.

These types of systems can include roads, bridges, water treatment facilities, and more.

Infrastructure is understood to be a critical factor in the health and wealth of a country, enabling private businesses and individuals to produce goods and services more efficiently.

With respect to overall economic output, increased infrastructure development by the government is generally expected to result in higher economic output in the short-term by stimulating demand and in the long term by increasing overall productivity.

Economic benefits can range from job creation to the avoidance of injury.

Other technological advancements, such as technological advancements in transportation, may result in fewer negligent driving accidents or other common accidents and injuries.

The short-term impact on economic output largely depends on the type of financing (whether deficit-financed or deficit-neutral) and the state of the economy (whether in a recession or expansion).

The long-term impact on economic output is also affected by the method of financing, due to the potential for “crowding out” of private investment when investments are deficit-financed.

Investments in core infrastructure, defined as roads, railways, airports, and utilities, are expected to produce larger gains in economic output than investments in some broader types of infrastructure, such as hospitals, schools, and other public buildings.

The Congressional Research Service suggests that modest reductions in the unemployment rate are in response to increased infrastructure investment.

History of Infrastructure Development in the U.S.

The question of infrastructure has been bestowed upon the nation since its founding.

Internal improvement or public work policy inspired George Washington, James Madison, and others to form our constitutional system of government.

John C Calhoun urged congressmen to “bin the Republic together with a perfect system of roads and canals.”

In the darkest hours of the Depression, FDR designed a public-works program “to put more men back to work, both directly on the public works themselves, and indirectly in the industries supplying materials,” because “no country, however rich can afford the waste of its human resources.”

One of the most notable events of infrastructure development in U.S. history is the creation of the Federal-Aid Highway Act of 1956.

The bill created a 41,000 mile “National System of Interstate and Defense Highways” that would, according to President Dwight Eisenhower, eliminate unsafe roads, inefficient routes, traffic jams, and all of the other things that got in the wat of “speedy, safe transcontinental travel.”

The law allocated $26 billion to pay for the roadways.

Under the terms of the legislation, the federal government would pay 90 percent of the cost of expressway construction.

The funding came from an increased gasoline tax that went into a non-divertible Highway Trust Fund.

The State of U.S. Infrastructure

Over the past several decades, government investment in infrastructure as a percentage of gross domestic products (GDP) has declined.

Annual infrastructure investment by federal, state, and local governments peaked in the late 1930s, at about 4.2% of GDP, and since has fallen to about 1.5% of GDP more recently.

In 2014, federal, state, and local governments spent $416 billion just on transportation and water infrastructure projects.

The federal government spent $96 billion of that, meanwhile state and local governments spent $320 billion.

Amid an economic crisis caused by the coronavirus pandemic, the debate continues over how to improve the nation’s infrastructure, as analysts say U.S. transportation, water, and other systems face major shortfalls, according to the Council on Foreign Relations.

Deteriorating infrastructure is a serious safety problem that must be solved.

Consequences for not doing so could include serious decline of American infrastructure and safety, resulting in an uptick in personal injuries and even death.

The U.S. population has more than doubled since the 1960s when the majority of the country’s major infrastructure systems were developed.

Many are reaching the end of their lifespan and are dangerously overstretched.

The American Society of Civil Engineers (ASCE) has compiled “report cards” on the state of U.S. infrastructure since the 1980s.

In its 2017 report, the ASCE found the nation’s infrastructure averaged a “D+”, meaning that conditions were “mostly below standard,” exhibiting “significant deterioration,” with a “strong risk of failure.”

The group estimated that there is a total “infrastructure gap” of more than $2 trillion needed by 2025 that if failed to be addressed would result in almost $4 trillion of GDP lost.

Current and Upcoming Infrastructure Initiatives

Today’s infrastructure construction is not similar to what it used to be in the past.

Current construction trends emphasize technology and other innovative advancements, to contribute to our economic growth and wellbeing.

We use and consume products and services related to infrastructure development every single day.

For more context, read the following to gain a better understanding of types of infrastructure and the major projects that are making headlines.

Aviation Infrastructure

Aviation Infrastructure projects develop and maintain airplanes and airports.

The Federal Aviation Administration (FAA) funded $840 million in infrastructure grants to 381 airports across the country.

Its Next Generation of Air Transportation system (NextGen) project will be one of the most technical aviation infrastructure construction efforts to date.

The project’s goal is to renovate aging airports and deteriorating runways.

Transportation Infrastructure

Both public transportation infrastructure and private transportation infrastructure are severely underdeveloped.

Car accidents, truck accidents, and other vehicle accidents remain one of the leading causes of injury and death in the U.S.

This is at least impart due to the lack of government-funded technological advancements in roadways and new car technology.

The U.S. treasury currently has 40 current of future plans to invest in transportation infrastructure development, with a total net economic benefit horizon estimated at $800 billion.

Bridge Infrastructure

Bridge infrastructure construction oversees the costs of building and maintaining bridges throughout the nation.

This includes heavily-trafficked highway bridges that are accessed daily.

The American Road and Transmission Builders Association released a report estimating that 54,239 of the country’s bridges have crumbling structures.

The report concluded that it would take more than 80 years to restore all of them.

Power and Energy Infrastructure

The electrical infrastructure oversees projects that deal with power including electrical lines, power grids, and innovations in alternative energy.

The United State’s electricity system is one of the largest in the world, using nearly 160,000 miles of power lines and connecting 145 million people.

Infrastructure Energy Alternatives (IEA) is increasing Nebraska’s stake in wind energy, with the construction of Milligan 1 Wind Farm.

Water Infrastructure

Water infrastructure works to create sustainable water projects to purify water supplies from waste and make it safe for drinking.

The United Environmental Protection Agency (EPA) works with other water sector partners to improve water efficiency in each state.

Pennsylvania Governor Tom Wolfe is funding $136 million for the state’s water infrastructure.

The project will improve drinking water, waste and pollution management, and develop new treatment plants in 15 counties throughout the state.

How to Effectively Implement Infrastructure Improvements

While there is no surefire way of going about Infrastructure investment, there is an abundance of possible solutions.

Many experts argue the U.S. will have to spend significantly more money to address its infrastructure deficit.

However, this type of proposal often splits people into partisan party-line arguments.

Several economists support raising revenue by increasing user fees, such as tolls.

They argue that requiring the user to shoulder more of the cost of the nation’s infrastructure both raises revenue and encourages more efficient use of resources.

Furthermore, some economists worry about expanding the federal role, given what they see as a history of politically driven and wasteful federal infrastructure spending.

Some argue that a steady flow of federal money gives states an incentive to build things they do not need and that they struggle to maintain.

For these reasons, the debate about how to invest in infrastructure largely takes place at the federal level, where those involved have aimed to pass substantial infrastructure legislation but have yet to secure bipartisan support.

Other Benefits of Infrastructure Development

The social and economic benefits of infrastructure investment are closely related.

For example, there is evidence that quality of life, health, and social inclusion are increasingly important factors in long-term economic prosperity, particularly as technology, working patterns, and lifestyles develop in new ways.

Infrastructure development decisions can also be part of strategies to shape social and economic outcomes in ways that promote a more socially cohesive and fair society.

Roadway infrastructure development can also prevent injuries resulting from car and truck accidents.

Infrastructure as a whole has been found to provide accessibility, inclusion, and safety.

Structures that are safely designed are better equipped to prevent injuries and death.