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Infrastructure and connectivity

Throughout history, better-connected villages and cities have been more prosperous. From the ancient cities of Mesopotamia to the Phoenician and Greek harbors around the Mediterranean, from the Roman paved roads to the Silk Road that connected China to Europe, and from the railroad systems built in Europe and North America in the 19th century to the interstate highway system of the 1950s in the United States and to the current global Internet network, human progress has been associated with the infrastructures that facilitate the exchange of products and ideas.

The concepts captured in the infrastructure and connectivity category of the updated GCI are essentially similar to those captured in the first version of the GCI. The only novelty is that, in addition to assessing the quality of the transport infrastructure, the pillar also measures the quality of domestic and international transport networks. Well-developed physical and digital infrastructures affect productivity directly by connecting economic agents, reducing transaction costs, easing the effects of distance and time, facilitating the flow of information, and facilitating integration of markets into global value chains. Information and communication technologies (ICTs) are becoming increasingly important: there is a growing empirical literature on how ICTs facilitate innovation and impact firm and country productivity by giving decision makers more complete information.26

Indirectly, physical and digital infrastructures impact productivity by enabling and improving access to basic services such as sanitation, education, and healthcare, and therefore contributing to a healthier and more skilled workforce.27 Transport and—increasingly—digital infrastructures enable deeper social interaction, which contributes to creativity and innovation and, in turn, to productivity.

These links are well established empirically,28 providing substantial evidence of the importance for productivity of both the quantity and quality of surface and air transport, energy, ICTs, and connectivity.

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26 Among others, see Franklin et al. 2009 on the impact of ICT use on firm performance in 13 EU economies; UNCTAD 2008 about ICT impact on Thailand’s manufacturing sector productivity; Brynjolfsson et al. 2011 on the impact of data on firm performance.
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27 As highlighted by Calderón and Servén 2014, additional indirect effects accrue through changes in the usage of other production factors as a result of complementarities with infrastructures and positive externalities.
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28 For example, Aschauer 1989 finds a large effect of public infrastructure on productivity in the United States and links the decline in productivity observed in the 1970s to the lack of infrastructure investment, though this was probably an overestimate resulting from methodological and data issues. Subsequent empirical research has typically found the impact to be smaller yet positive in most cases. A meta-analysis by Straub 2008 finds a significant positive effect of various infrastructure measures on productivity in two-thirds of cases. On separate but related issues, see also Canning and Pedroni 2008; Pritchett 2000; and Tanzi and Davoodi 1997; also see Keefer and Knack 2007 about the importance of governance, corruption and clientelism for public expenditure and consequential better quality of infrastructures.
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