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Infrastructure, Growth and the Two Dimensions of Industrial Policy

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  • Moshe Justman

Abstract

When sustained growth depends on establishing an indivisible infrastructure for directly productive activities (DPAs) both discrete and marginal departures from optimal growth can undermine the dynamic efficiency of the market. Producers' anticipations of paying monopoly fees for infrastructure services dampen their incentive to invest in DPAs and may prevent the economy from reaching a minimal level of activity that would justify investment in a large indivisible infrastructure; and potential investors in infrastructure may be intimidated by the prospect of expropriatory regulation. Thus a credible prior commitment to effective but fair regulation is necessary for achieving optimal growth. But it may not be sufficient. Low-level expectations before the infrastructure is established can be self-fulfilling, indicating a role for coordinative industrial policy. Investment subsidies, even in conjunction with regulation, cannot induce an efficient equilibrium.

Suggested Citation

  • Moshe Justman, 1995. "Infrastructure, Growth and the Two Dimensions of Industrial Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 131-157.
    • Handle: RePEc:oup:restud:v:62:y:1995:i:1:p:131-157.
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    Cited by:

    1. Zadvorneva>, Evgeniya & Stukach, Victor, 2018. "Столица Казахстана: Институциональная Среда Агропродовольственного Рынка, Инфраструктура Продовольственного Снабжения Мегаполиса [The capital of Kazakhstan: the institutional environment of the agr," MPRA Paper 92042, University Library of Munich, Germany, revised Feb 2019.
    2. Mukul GUPTA & Rahul BUDHADEV & Varun CHOTIA & N V Muralidhar RAO, 2016. "Integrating the issue of infrastructural investment with economic growth: The case of India," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(608), A), pages 141-162, Autumn.
    3. Mukul GUPTA & Rahul BUDHADEV & Varun CHOTIA & N V Muralidhar RAO, 2016. "Integrating the issue of infrastructural investment with economic growth: The case of India," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 141-162, Autumn.
    4. de Fontenay, Catherine C., 2004. "The dual role of market power in the Big Push: from evidence to theory," Journal of Development Economics, Elsevier, vol. 75(1), pages 221-238, October.
    5. Padmore, Tim & Gibson, Hervey, 1998. "Modelling systems of innovation: II. A framework for industrial cluster analysis in regions," Research Policy, Elsevier, vol. 26(6), pages 625-641, February.
    6. Kartasheva, Anastasia V., 2012. "Design of investment promotion policies," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 127-136.
    7. Christian Weise, 1995. "EU-Politik zur Steigerung regionaler Wettbewerbsfähigkeit," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 64(2), pages 266-278.
    8. Catherine deFontenay, 2000. "Market Power and the Failure of the Big Push: Evidence and Theory," Econometric Society World Congress 2000 Contributed Papers 1269, Econometric Society.

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