public infrastructure investment and economic growth a study at lang giang district

This paper attempted to investigate the impact of public infrastructureinvestment on economic growth in Lang Giang.. Especially, thepublic investment in infrastructure has impacts on the

MINISTRY OF FINANCE ACADEMY OF FINANCE FACULTY OF FOREIGN LAGUAGES

Hanoi 2013

MINISTRY OF FINANCE ACADEMY OF FINANCE FACULTY OF FOREIGN LAGUAGES

- -PUBLIC INFRASTRUCTURE INVESTMENT AND ECONOMIC

GROWTH A STUDY AT LANG GIANG DISTRICT

SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF BACHELOR OF ARTS IN ENGLISH FOR

FINANCE & ACCOUNTING

Student: Nguyen Thi Hanh Class: CQ47/51.03 Supervisor: MA Truong Thi Minh Hanh

Hanoi 2013

Signed hereby, certify hereby that that is my own research The contentand figures presented in the thesis reflected a fair and true situation of theinternship organization

Hanoi, April, 27th 2013

This paper attempted to investigate the impact of public infrastructureinvestment on economic growth in Lang Giang The paper also utilized three-stage least squares technique to capture the transmission channels through whichpublic infrastructure promote growth The research covered 3 years (2010, 2011and 2012) The finding shows that infrastructure investment has a significantimpact on growth of the economy directly through increasing in GDP andproductivity, indirectly through improving the competitiveness of economy Theresults also show the management of investment in public infrastructure atdistrict authorities The paper recommended increased investment ininfrastructure Also, the financing options for closing Lang Giang’sinfrastructure gaps should focus on broadening of finance and a better allocation

of public resources

I would like to express my sincere gratitude to my supervisor, Mrs.Truong Thi Minh Hanh She gave me her valuable advices and kindly directions.Her wide understanding, logical way of thinking and personal guidance provide

me a good basic for my thesis

I am deeply grateful Mr Dang Van Them, director of Division Of FinanceAnd Planning at Lang Giang district; Mrs Nguyen Thi Kim Thoa, Vice-director

of Division Of Finance And Planning at Lang Giang district; Mrs Nguyen ThiHien, the investing officer and Mr Nguyen Tuan Anh, the budgeting officer ofDivision Of Finance And Planning at Lang Giang district for giving chance towork with them and facilitating me in the internship period

I warmly thank to my family and my friends who have supported me incompleting my thesis Their encouragement and knowledge offset and complete

my lack of understanding

Without their support, I could not finish my own research

LIST OF TABLES Table 2.1: Capital for infrastructure development from the budget for the

peoriod 2010-2012 in Lang Giang district 25

Table 2.2: Structure investment in the infrastructure in sectors 26

Table 2 3: GDP of Lang Giang district during 3 years: 2010, 2011, 2012 29

Table 2 4: ICOR of Lang Giang in the peoriod 2010-2012 30

Table 2.5: The production capacity of a number of products Lang Giang district. .34

LIST OF ABBRIVIATIONS

GDP : Gross Domestic Product

GNP : Gross National Product

DPC : District People’s Committee

OECD : Organization for Economic Cooperation and Development

TFP : Total Factor Productivity

ODA : Official Development Assistance

PPP : Public Private Partnership

BT : Build -Transfer

BOT : Build - Operate - Transfer

ICOR : Incremental Capital Output Ratio

TABLE OF CONTENTS

DECLARATION i

ABSTRACT ii

ACKNOWLEDGEMENT iii

LIST OF TABLES iv

LIST OF ABBRIVIATIONS v

TABLE OF CONTENTS vi

INTRODUCTION 1

CHAPTER 1: LITERATURE REVIEW 3

1.1 Public infrastructure 3

1.1.1.Definition 3

1.1.2.Types 4

1.2 The economic growth 5

1.2.1.The definition 5

1.2.2.The economic growth and the economic development 5

1.2.3.Measurement of economic growth 6

1.3 The relationship between the public infrastructure investment and the economic growth 9

1.3.1.Increase in GDP 10

1.3.2.Rise in market productivity 13

1.3.3.Improvement in the regional competitiveness 19

CHAPTER 2: THE STUDY 20

2.1 Brief introduction about Langgiang district 20

2.1.1.Geographical location and potentially economic development 20

2.1.2.The structure of Lang Giang DPC 21

2.1.3.Lang Giang Division Of Finance and Planning 23

2.1.3.1 .The structure of Lang Giang Division Of Finance And Planning .23

2.1.3.2 .The duties and powers of Lang Giang Division of Finance and Planning 23

2.1.3.2.1.Economic planning and investing 23

2.1.3.2.2.Managing revenues and expenditures 24

2.1.3.2.3.Managing price 24

2.2 Investment in the public infrastructure of Langgiang in period 2010-201224 2.3 The impacts of the public infrastructure investment on the economic 28

2.3.1 The public infrastructure development contributes to increase in GDP of Langgiang 28

2.3.2 The public infrastructure development contributes to rise in market productivity 31

2.3.3 The public infrastructure development contributes to improve the competitiveness of Langgiang 35

2.4 Mini conclusion 36

CHAPTER III: RECOMMENDATIONS 38

3.1 The development orientation 38

3.1.1 Developing infrastructure of transport 38

3.1.2 Developing infrastructure of power supply 39

3.1.3 Developing infrastructure of irrigation and coping with climate change 40

3.1.4 Developing urban infrastructure 40

3.1.5 Developing infrastructure of industrial parks and economic zones 41

3.1.6 Developing commercial infrastructure 42

3.1.7 Developing infrastructure of information sector 42

3.1.8 Developing infrastructure of education and training, science and technology 43

3.1.9 Developing infrastructure of health sector 44

3.2 Some suggestions for enhancing the effectiveness of the investment in the public infrastructure 45

3.2.1 Improving the quality of construction and implementing the plan of public infrastructure development 45

3.2.2 Using effectively capital to develop infrastructure systems 46

3.2.3 Improving effectiveness and efficiency of state management of infrastructure investment 48

3.3 Proposals 49

3.3.1.Proposals to the State 49

3.3.2.Proposals to the Lang Giang DPC and relevant agencies 50

CONCLUSION 51

REFERENCE 52

APPENDIX 53

INTRODUCTION Rationale

Public infrastructure investment is the government spending for basic physicaland organizational structures needed for the operation of a society or

enterprise, or the services and facilities necessary for an economy to function.The public infrastructure development plays a major role in promoting growthand equity and through both channels helps to reduce poverty Especially, thepublic investment in infrastructure has impacts on the economic growth as:

creating the jobs, enhancing the economy’s performance, improving the

economy’s competitiveness…This study examines the relationship between thepublic infrastructure development and the economic growth at the level of region

- Lang Giang district This dissertation provides the readers an opportunity toreview the effects of the public infrastructure investment on the economic

growth of Lang Giang’s economy

Aims of the study

The aim of this dissertation is to assess the importance of public infrastructureinvestment in Lang Giang and how this has impacts on the long-term sustainablegrowth of the Lang Giang economy given the current economic constraints

Scope of the study

Because of the limited time and the scale of the research, and for thethoroughness of what is done, this research only focuses on the publicinfrastructure investment made by Lang Giang district over a period of 3 years(2010, 2011, 2012) and its impacts on the economic growth in the town

The study attempts to answer the following questions:

 How has the public infrastructure investment contributed to increase inGDP and improved the competitiveness of Lang Giang over a period of3years (2010, 2011, and 2012)?

 What should Lang Giang do in order to enhance the effectiveness of

investment in the public infrastructure?

Methodology

Relevant literature, publications and studies are reviewed in order to get in-depthinformation on the relationship between public infrastructure investment andeconomic growth The study employs a combination of questionnaires, telephoneinterviews and face-to-face discussion to gather information for analysis

Organization of the study

Apart from the INTRODUCTION, CONCLUSION, REFERENCES andAPPENDIXES the research paper is divided into three chapters as follows

Chapter 1 LITERATURE REVIEW: This chapter gives a general

overview of public infrastructure investment, economic growth and theirrelationship to form the theoretical framework

Chapter 2 THE ACTUAL STUDY on the relationship between the public

infrastructure development and economic growth at Lang Giang

Chapter 3 RECOMMENDATIONS: This chapter summarizes the

findings of the study and suggestions for Lang Giang development orientationand the solutions

CHAPTER 1: LITERATURE REVIEW

1.1 Public infrastructure

1.1.1 Definition

Public infrastructure is basic physical and organizational structures needed forthe operation of a society or enterprise, or the services and facilities necessaryfor an economy to function It can be generally defined as the set ofinterconnected structural elements that provide framework supporting an entirestructure of development It is an important term for judging a country orregion's development

The term typically refers to the technical structures that support a society, such

as roads, bridges, water supply, sewers, grids, telecommunications, and so forth,and can be defined as "the physical components of interrelated systemsproviding commodities and services essential to enable, sustain, or enhancesocietal living conditions."

Viewed functionally, infrastructure facilitates the production of goods andservices, and also the distribution of finished products to market, as well as basicsocial services such as schools and hospitals; for example, roads enable thetransport of raw materials to a factory In military parlance, the tern refers to thebuildings and permanent installations necessary for the support, redevelopment,and operation of military forces To make it simple, infrastructure in anythingthat is needed every day, an everyday item

1.1.2 Types

The public infrastructure is divided into two types They are hard publicinfrastructure and soft public infrastructure In this article, "hard" publicinfrastructure refers to the large physical networks necessary for the functioning

of a modern industrial nation, whereas "soft" public infrastructure refers to allthe institutions which are required to maintain the economic, health, and culturaland social standards of a country, such as the financial system, the educationalsystem, the health, the system of government, and law enforcement, as well

as emergency services

Infrastructure systems include both the fixed assets, and the controlsystems and software required to operate, manage and monitor the systems, aswell as any accessory buildings, plants, or vehicles that are an essential part ofthe system Also included are fleets of vehicles operating according to schedulessuch as public transit buses and garbage collection, as well as basic energy orcommunications facilities that are not usually part of a physical network, such

as oil refineries, and television broadcasting facilities

Soft infrastructure includes both physical assets such as highly specializedbuildings and equipment, as well as non-physical assets such as the body of rulesand regulations governing the various systems, the financing of these systems, aswell as the systems and organizations by which highly skilled and specializedprofessionals are trained, advance in their careers by acquiring experience, andare disciplined if required by professional associations (professional training,accreditation and discipline)

Unlike hard infrastructure, the essence of soft infrastructure is the delivery ofspecialized services to people Unlike much of the service sector of the economy,the delivery of those services depend on highly developed systems and largespecialized facilities or institutions that share many of the characteristics of hardinfrastructure.

1.2.The economic growth

1.2.1 The definition

Economic growth is the increase in the amount of the goods and servicesproduced by an economy over time It is conventionally measured as the percentrate of increase in real gross domestic product, or real GDP Growth is usuallycalculated in real terms, i.e inflation-adjusted terms, in order to obviate thedistorting effect of the inflation on the price of the goods produced In economy,

"economic growth" or "economic growth theory" typically refers to growth

of potential output, i.e., production at "full employment"

As an area of study, economic growth is generally distinguished from economicdevelopment The former is primarily the study of how countries can advancetheir economies The latter is the study of the economic aspects of thedevelopment process in low-income countries

1.2.2 The economic growth and the economic development

Economic development generally refers to the sustained, concerted actions

of policymakers and communities that promote the standard of livingand economic health of a specific area Economic development can also be

referred to as the quantitative and qualitative changes in the economy Suchactions can involve multiple areas including development of humancapital, critical infrastructure, environmental sustainability, socialinclusion, health, safety, literacy, and other initiatives Economic developmentdiffers from the economic growth Whereas the economic development is

a policy intervention endeavor with aims of economic and social well-being ofpeople, economic growth is a phenomenon of market productivity and rise

in GDP Consequently, as economist Amartya Sen points out: “economic growth

is one aspect of the process of economic development.”

1.2.3 Measurement of economic growth

Economic growth is measured as a percentage change in the Gross DomesticProduct (GDP) or Gross National Product (GNP) These two measures, whichare calculated slightly differently, total the amounts paid for the goods andservices that a country produced As an example of measuring economic growth,

a country which creates $9,000,000,000 in goods and services in 2011 and thencreates $9,090,000,000 in 2012, has a nominal economic growth rate of 1% for2012

In order to compare per capita economic growth among countries, the total sales

of the respected countries may be quoted in a single currency This requiresconverting the value of currencies of various countries into a selected currency,for example U.S dollars One way to do this conversion is to rely on exchangerates among currencies Another approach is to use the purchasing power

parity method This method is based on how much consumers must pay for thesame "basket of goods" in each country.

The inflation or the deflation can make it difficult to measure economic growth

If GDP, for example, goes up in a country by 1% in a year, was this due solely torising prices (inflation), or because more goods and services were produced andsaved? To express real growth rather than changes in prices for the same goods,statistics on economic growth are often adjusted for inflation or deflation

There are at least three different ways to measure growth of real GDP It isimportant to know which is being used, and to understand the differences amongthem The three most common ways to measure real GDP are:

 Quarterly growth at an annual rate

 The four-quarter or "year-over-year" growth rate

 The annual average growth rate

Quarterly growth at an annual rate shows the change in real GDP from one

quarter to the next, compounded into an annual rate (This process is often called

"annualizing.") For example, in the second quarter of 2012, the economy grew0.1 per cent from the first quarter If the economy had grown at that pace for anentire year, the annual growth would be 0.4 per cent So the quarterly growth at

an annual rate was reported at 0.4 per cent

This measure is often used by the media It does a good job of showing recenteconomic developments But it also tends to be volatile This is because theeffects of any one-time-only factors during the quarter, labor disputes forexample, become compounded when the rate is annualized.

The four-quarter, or "year-over-year" growth rate, compares the level of

GDP in one quarter to the level of GDP in the same quarter of the previous year.For example, in the second quarter of 2012, GDP was 2.1 per cent above that inthe second quarter of 2011 This measure is popular among businesses, whogenerally present their own quarterly earnings results on that basis to avoidseasonal variations

The year-over-year growth rate tends to be somewhat less volatile than quarterlygrowth at an annual rate That is because the effect of any special factors doesnot get compounded But it is also less timely, since it looks at what happened tothe economy over the entire previous year, not just the past three months

Finally, the annual average growth rate is the average of year-over-year

percentage changes reported during a year The November Monetary PolicyReport indicates that the Bank expects the annual average growth rate for 2012

to be about 1.5 per cent For the first half of 2012, the year-over-year growthrates as published by Statistics are 2.5 per cent in the first quarter and 2.1per cent in the second quarter For the third and fourth quarters, a profile that isconsistent with the expectations described in the November Report (say -0.5 per

cent and 0 per cent, respectively at annual rates) yields year-over-year growth of0.9 per cent in the third quarter and 0.5 per cent in the fourth quarter Averagingthe four year-over-year growth rates in 2012 gives the annual average growthrate of 1.5 per cent.

Each measure has strengths and weaknesses But mixing up the measures canlead to results that may look confusing at first glance

1.3.The relationship between the public infrastructure investment and the economic growth

World Bank (WB) research has examined this issue from several angles Recentresearch shows that every 10 percent increase in infrastructure provisionincreases output by approximately 1 percent in the long term Improvedinfrastructure quality accounted for 30 percent of growth attributed toinfrastructure in developing countries The impact on growth varies by country

In Egypt, for example, an increase in infrastructure expenditures from 5 to 6percent of Gross Domestic Product would raise the annual GDP per capitagrowth rate by half a percent in a decade’s time

For the World Bank Chief Economist Justin Lin, a global infrastructure initiative

is needed as a growth-lifting strategy Scaling up infrastructure investment indeveloping countries can help generate a virtuous cycle in support of a globalrecovery These investments require capital goods, many of which are produced

in advanced economies, and can help support their manufacturing sector Inaddition, as growth in developing countries is lifted, their demand for productsproduced in advanced economies would increase further, possibly triggering avirtuous circle of mutually reinforcing growth.

A strategy for global growth must fully engage developing countries that havebeen the engine of global demand Channeling surplus global savings to growth-enhancing investments in developing countries, especially in infrastructure,would promote development but also have positive spillovers for global growthand rebalancing.

1.3.1 Increase in GDP

Over the last 30 years there have been various economic models developed tohelp in the research of the impact of infrastructure investment on the economy.The in-depth empirical studies have mainly utilized macro-economic level data,which includes cross-state and cross-country data (Straub, 2007) Edinburghpaper

According to the studies carried out by Aschauer (1989) he states that whenanalyzing the importance of public investment to the economic growth, addedweight must be attributed to the public investment decisions made by theGovernment Furthermore, the study indicates increased growth in the economy

by investing in areas such as highways, sewers, streets, and water systems

To ascertain these findings, Aschauer took the average annual growth rates oftotal factor productivity and the non-military public capital stock in Americaover the period 1950-1985; Aschauer’s data indicated a close relationshipbetween level of investment in non-military infrastructure and growth.

Further research in the United States carried out by Munnell (1990) analyzed theimpact of the stock of public capital on economic activity at the regional andstate levels In conclusion, Munnell found that the US states that had invested ininfrastructure had greater output, increased levels of private investment, and highlevels of employment growth

The study highlighted above, Aschuer (1989) estimated an elasticity of outputwith respect to public infrastructure capital in the United States during 1950-

1985 of between 0.38 and 0.56 These results have been shown to beeconometrically suspected and subsequent work suggests the elasticity is muchsmaller The average elasticity across OECD countries for the period 1960-2001has recently been estimated to be 0.2 (Kanps, 2004) Aschauers paper has,however, proved very fruitful in terms of subsequent research, which itstimulated (Crafts & Leunig, 2005)

A number of empirical studies have looked at the relationship between all publicinfrastructure investment and GDP growth On average these studies seem toindicate a positive elasticity of output to public capital of around 0.20 Putanother way, a ten per cent increase in public capital stock increases GDP byaround 2 per cent (Eddington report 2006)

The Eddington report suggests that there are limitations to these empiricalstudies and the results should be viewed with caution OECD (2003) argues thatearly empirical work on the link between infrastructure investment and economicperformance overstated the magnitude of the impact on GDP and productivitygrowth (The sources of economic growth in OECD countries, OECD, 2003) Inparticular, studies that focus on public investment in capital and infrastructure in

a broad sense, rather than on transport specifically, do not really distinguishbetween types of investment in terms of new build, upgrade, maintenance etcalthough some do make specific conclusions about the value of transportinfrastructure investment

Later studies using more complex modeling suggest a positive, albeit weakerrelationships between infrastructure and GDP These include: Kocherlakota and

Yi (1997), Demetiades and Mamuneas (2002), O’Fallon (2003), and Nijkampand Poot (2004)

In 1993, Easterly and Robero carried out further research to expand on the work

in this field Called Fiscal Policy and Economic Growth: An EmpiricalInvestigation, it details several conclusions that support the findings expressed

by Aschauer’s research in 1989 It tackled areas such as the rate of growth andthe level of development by employing historical data and recent cross-sectiondata

The main findings outlined that there is a strong relationship between a countriesfiscal structure and the development level and that investment levels incommunication and transport is consistently correlated with growth This

therefore indicates that infrastructures are important in the economic prosperity

of a nation (Easterly, Robelo 1993) Put in reference Eisner (1991) highlightedthat public infrastructures not only serve as an intermediate good in physicalgoods production, they can also be final consumption goods For example, waterand sewage systems benefit environment, better transportation saves time spent

on travelling, public parks give people pleasure, etc Canning, Fay, and Perotti(1994) found substantial effects of physical infrastructure on economic growthbased on the international data set

The strategy for national infrastructure also states, “The majority of empiricalresearch indicates that there is positive relationship between infrastructure andeconomic growth” (strategy for national infrastructure, 2010)

1.3.2 Rise in market productivity

Economists have viewed infrastructure as a key ingredient for productivity andgrowth since at least Adam Smith Conceptually, infrastructure may affectaggregate output in two main ways: first, directly because infrastructure servicesenter production as an additional input, and second, because they raise totalfactor productivity by reducing transaction and other costs thus allowing a moreefficient use of conventional productive inputs

How big is the contribution of infrastructure to aggregate economicperformance? The answer is critical for many policy decisions – for example, togauge the growth effects of fiscal interventions in the form of public investment

changes, or to assess if public infrastructure investments can be self-financing.The empirical literature aimed to offer such quantitative assessments took offwith the seminal work of Aschauer (1989) on the effects of public infrastructurecapital on U.S total factor productivity (TFP) Using time-series data, he found

an extremely (and, for most observers, implausibly) large effect

Subsequent empirical research has employed a variety of data, empiricalmethods and infrastructure measures The approaches most frequently usedinvolve the estimation of (i) a production function (or its dual, the cost function)defined at a suitable level of aggregation (national, regional, etc), includingmeasures of infrastructure along with conventional productive inputs, and (ii)empirical growth equations, relating output or productivity growth to differentindicators of infrastructure performance together with other controls, typically in

a cross-country (or cross-state or province) setting For these exercises,infrastructure is variously measured in terms of physical stocks (e.g., km ofroads or number of telephone lines) or pecuniary stocks constructed byaccumulating spending flows The underlying assumption is that the flow ofproductive infrastructure services is directly related to the size of the stock ofinfrastructure assets, analogously to what is routinely assumed about the services

of human and physical capital

For the most part, this literature focuses on quantifying the impact ofinfrastructure on aggregate performance, and is silent about the specific channels

through which the impact occurs Its findings are far from unanimous, but amajority of studies reports a significant positive effect of infrastructure on output,productivity, or their growth rate This is mostly the case with studies usingphysical measures of infrastructure stocks; in contrast, results are less conclusiveamong studies using pecuniary measures such as public investment flows or theiraccumulation into public capital There is a good reason for this, namely the lack

of a close correspondence between public capital expenditure and theaccumulation of public infrastructure assets or the provision of infrastructureservices, owing to inefficiencies in public procurement and outright corruption –issues that are likely more important in developing economies than in moreadvanced ones (Pritchett 2000)

Empirical estimates of the magnitude of infrastructure’s contribution displayconsiderable variation across studies Overall, however, the recent literaturetends to find smaller (and more plausible) effects than those reported in theearlier studies (Romp and de Haan 2007), likely as a result at least in part – ofimproved methodological approaches Thus, in a production-function setting, themid-point estimate from recent studies of the elasticity of GDP with respect toinfrastructure capital lies around 0.15 for developed countries (Bom and Ligthart2009) This means that a doubling of infrastructure capital raises GDP byroughly 10 percent Estimates from recent studies using broader country samplesare not very different However, this captures only the direct effect ofinfrastructure on output, given the use of other productive inputs; there may be

additional indirect effects accruing through changes in the usage of the otherinputs due to complementarities with infrastructure.

In turn, the findings from reduced-form growth regressions are somewhat harder

to summarize, because different studies condition on very different sets of infrastructure variables Nevertheless, estimates from recent studies based onpanel data combining industrial and developing countries suggest that a 1-percent increase in physical infrastructure stocks, given other variables,temporarily raises GDP growth by as much as 1-2 percentage points, althoughthe growth acceleration gradually tapers off as the economy approaches its long-run per capita income

non-Moreover, a number of empirical studies using various approaches also find thatthe output contribution of infrastructure exceeds that of conventional capital,which suggests the presence of externalities associated with infrastructureservices, in line with theoretical presumptions

These results are subject to some caveats, however Two in particular are worthstressing The first one is reverse causation The output (or growth) impact ofinfrastructure supply that empirical studies aim to capture may be confoundedwith the (positive) impact of higher incomes on the demand for infrastructureservices Failure to take this feedback effect into account likely results in an

overestimation of the output contribution of infrastructure Yet relatively fewstudies address this issue.

The second caveat concerns heterogeneity The output contribution ofinfrastructure may well vary across countries and time periods depending onmany factors – starting with the heterogeneous quality of infrastructure assetsthemselves However, few studies take into account the quality dimension – inlarge part perhaps due to measurement problems Those find that the quality ofinfrastructure is no less important than its quantity for aggregateperformance One practical implication is that adequate maintenance of existingassets deserves at least as high a priority as the acquisition of new ones, a lessonoften forgotten, especially in developing countries

Aside from asset quality, variation in the effects of infrastructure could arisefrom many other sources – e.g., network effects that create nonlinearities in theoutput contribution of infrastructure; institutional factors that constrain theefficient use of infrastructure assets Still, formal tests reported in some recentstudies fail to yield much evidence of heterogeneity in the cross-countrydimension While these tests may lack power, due to the poor precision ofcountry-specific estimates, they imply that – other things equal – the percentageincrease in real GDP (or its growth rate) that results from a given percentageincrease in the availability of infrastructure is roughly similar across countriesirrespective of size, income level, or infrastructure endowment Hence the

marginal productivity of infrastructure is higher, other things equal, where the(relative) stock of infrastructure is lower – e.g., if the ratio of infrastructurecapital to GDP doubles, the marginal productivity of infrastructure is halved.

However, before taking this conclusion as a basis to determine infrastructurespending, it is important to keep in mind that the bulk of the empirical literaturesummarized here is concerned with measuring the returns on infrastructure assets(in terms of output), but has much less to say about the cost of acquiring andoperating them Assessing the latter is necessary to reach conclusions about theoptimal level of infrastructure provision, achieved by equating marginal socialreturn and cost, and to determine accordingly whether infrastructure is under- orover-provided Intuitively, if infrastructure is close to its optimal level, thegeneral-equilibrium growth effect of a marginal addition to the infrastructurestock should be zero, as the direct output impact of increased assets would cancelout with the negative impact of diverting more resources towards infrastructureaccumulation

Very few studies have followed this route, typically using simple growth modelsthat take explicit account of the resource cost of public infrastructure Cross-country studies unsurprisingly conclude that infrastructure is over- (under-)provided in some countries, but not in other countries, and the verdict shows noclear correlation with countries’ per capita income These conclusions may well

be model-dependent, and their robustness has yet to be established But the

implication is that there is no evidence of a ‘generalized’ infrastructure shortage,

so that country and sector-specific studies are necessary to identify suitablepolicy actions

1.3.3 Improvement in the regional competitiveness

“Infrastructure forms the economic backbone of the country It is the fabric thatdefines us as a modern industrialized nation The standard and resilience ofinfrastructure in this country has a direct relationship to the growth andcompetitiveness of our economy.” (Skinner, 2010)

“For a region to retain its competitive edge, a longer-term view of investment ininfrastructure must lead policy making.” (Stewart, 2009)

Another author is Sylvie Demurger in his study “Infrastructure development andeconomic growth An explanation for regional disparities” provides empiricalevidences on the link between infrastructure investment and economic growth.Using panel data from a sample of provinces (excluding municipalities)throughout the long period, the estimation of a growth model shows that, besidesdifferences in terms of reform and openness, geographical location andinfrastructure endowment did account significantly for observed differences ingrowth performance across provinces The result indicate that transport facilitiesare a key differentiating factor in explaining the growth gap and point to the role

of telecommunication in reducing the burden of isolation

CHAPTER 2: THE STUDY

2.1 Brief introduction about Langgiang district

2.1.1 Geographical location and potentially economic development

Lang Giang district located in the geographical coordinates from 21016 'to 21018' North latitude and from 106 010 'to 106 021' east longitude, is located in thenortheast district of Bac Giang province is located at the gateway connecting theprovinces northeast of the town of Bac Giang, north Huu Lung district (LangSon province) and Yen The district, south city Bac Giang and Yen Dung district,Luc Nam district east and west by Tan Yen Currently, natural area of 240 km2(02 of 21 communes and towns, district headquarters Committee, People'sCouncil, People's Committee put in Voi town) The population of the district ismore than 190,000 people, including people of working age account for over45% Lang Giang is the land of rich cultural traditions, history with the festival

It also set prices for thousands of years old trees, a place visited by many tourists

Compared to other districts in the province, Lang Giang district withgeographical location relative advantages, there are some important roads of thecountry running through (road, rail, and waterways) Voi town Kep town 20kmfrom Bac Giang city and 70km from Hanoi by motorways, located on theNational Highway 1A and railway Hanoi - Lang Son to the international borderDong Dang, where exchanges bustling present, is positioned to make twostrategic corridors, one economic belt in the Government's economic cooperationwith China's special economic corridor Nanning (China) - Lang Son - Hanoi -Hai Phong in operation for the development of commodity production and

exchange in the provincial economy, domestic and international Kep town is agood place to build dry docks for the North East Province Highway 31 from thecity passing through the town of Bac Giang Thai Training, University of LangGiang Lam to the Luc Nam, Luc Ngan Son Dong, Dinh Lap (Lang Son) met toHighway 4A Mui Chua port, Tien Yen and connect with Mong Cai border gate(Quang Ninh) Highway 37 from the town of Kep, Huong Son via the Luc Namdistrict went to town Hon Chi Linh failure (Hai Duong) Highway 18 can see theport of Hai Phong and Cai Lan deepwater port off (Quang Ninh) The railwayLuu Xa - Ha Long Quang Ninh Thai Nguyen connection, passing Nghia Hoa,Quang Thinh, Huong Son and Kep town River Waterway with boats often runthrough small and easily accessible, these are favorable conditions for socio -economic development of the district.

With its favorable geographical position, Lang Giang is now one of 04 districts

in the province, identified as key areas of economic development - social (VietYen, Yen Dung, Lang Giang and Bac Giang city) Have formed a number ofindustrial clusters such as Tan Dinh –Phi Mo, Xuong Lam, Dai Lam, Nghia Hoabasically filled, is attracting investment in industrial clusters society Phi Mo Semount, Tan Hung and produced some of the raw materials for agro-processingindustry

2.1.2 The structure of Lang Giang DPC

Structure of Lang Giang DPC

The State Administration, business units in the district

 Council Office - DPC

 Division of Finance – Planning

 Division of Economics - Infrastructure

 Division of the Interior

 Division of Natural Resources and Environment

 Division of Agriculture and Rural Development

 Division of Culture and Information

 Division of Labor - Invalids and Social Affairs

 Division of Health

 Division of Justice

 District Inspector

 Division of Education and Training

 Board construction project management

 Radio Broadcasting

 Center of Land Development - Industrial Complex

 Center of Information, culture and Sports

 Extension Station