The Role of Regional Infrastructure Cooperation in Economic Growth and Integration

2.1. Defining Infrastructure

Infrastructure plays an important role in promoting rapid economic growth and making this growth more inclusive, by sharing the benefits of growth with poorer groups and communities, particularly in remote and isolated areas and small and landlocked countries. Infrastructure facilitates the poor's access to basic services and helps increase their income generating capacity. Physical connectivity through cross-border infrastructure (CBI) development is crucial for enhanced regional cooperation and economic integration (Kuroda 2006).

Infrastructure can mean many things to different people. The American Heritage Dictionary defines the term as the basic facilities, services, and installations needed for the functioning of a community or society, such as transportation and communications systems, water and power. Infrastructure typically refers to the technical structures that support a society and economy, such as transportation, water supply, wastewater treatment facilities, power grids, flood management systems, and communications (internet, phone lines, and broadcasting).

In economic terms, however, infrastructure can be seen as a structure which allows for the production and exchange of goods and services. Broadly defined, the concept of infrastructure is not limited to public utilities, but may also refer to information technology, informal and formal channels of communication, software development tools, and political and social networks which support the economic system (such as a city or a country). It also encompasses the soft aspects of infrastructure such as operating procedures, management practices, and development policies that interact with societal demand and the physical world to facilitate the transport of people and goods, and the provision of safe water and energy, among others (National Research Council 1987).

Infrastructure can be categorized into hard infrastructure and soft infrastructure. The former refers to physical structures or facilities that support the society and economy, such as transport (e.g., ports, roads, railways); energy (e.g., electricity generation electrical grids, gas and oil pipelines); telecommunications (e.g., telephone and internet); and basic utilities (e.g., drinking water supply, hospitals and health clinics, schools, irrigation, etc.). The latter refers to non-tangibles supporting the development and operation of hard infrastructure, such as policy, regulatory, and institutional frameworks; governance mechanisms; systems and procedures; social networks; and transparency and accountability of financing and procurement systems (Bhattacharyay 2008).

Cross-border or regional infrastructure may be defined as infrastructure that connects two or more countries, as well as national infrastructure that has significant cross-border impact. Therefore, a large portion of national infrastructure, such as airports, ports, roads, and railways, can be considered as CBI. In other words, national infrastructure connectivity or integration is the building block for cross-border or regional connectivity.

2.2. Infrastructure and its Linkages to Economic Growth and Development

Infrastructure spending accounts for a significant proportion of national income and consumption in many countries; as such, any reform affecting the sector is likely to have wider repercussions on the economy. Empirical evidence indicates that infrastructure spending has a positive and statistically significant effect on long-run economic growth (World Bank 2002). Ghosh and De (2005), for instance, have noted that infrastructure in least developed countries contributed towards a hinterland's output, income, employment growth and quality of life. Meanwhile, Esfahani and Ramirez (2003) have found that if Africa had East Asia's growth rate in telephones per capita (10% vs 5%) and in electricity generation (6% vs 2%), its per capita growth rate would have been at least 0.9% higher. Richards (2008) has shown that due to the lack of adequate investment in infrastructure during the 1990s, Latin America's long-term growth was lower by 1 to 3 %. Because infrastructure service provides valuable inputs to other commercial activities, the removal of infrastructure bottlenecks contributes to overall growth. In East Asia, recent studies have indicated that greater stocks of infrastructure were indeed associated with higher growth (Seethepalli et al. 2008).

least developed countries contributed towards a hinterland's output, income, employment growth and quality of life. Meanwhile, Esfahani and Ramirez (2003) have found that if Africa had East Asia's growth rate in telephones per capita (10% vs 5%) and in electricity generation (6% vs 2%), its per capita growth rate would have been at least 0.9% higher. Richards (2008) has shown that due to the lack of adequate investment in infrastructure during the 1990s, Latin America's long-term growth was lower by 1 to 3 %. Because infrastructure service provides valuable inputs to other commercial activities, the removal of infrastructure bottlenecks contributes to overall growth. In East Asia, recent studies have indicated that greater stocks of infrastructure were indeed associated with higher growth (Seethepalli et al. 2008).

Other empirical studies have highlighted the importance of infrastructure in promoting growth and reducing poverty. A UNESCAP (2006) study on infrastructure in developing Asian countries has shown that road transport and electricity, in particular, play a key role in poverty reduction. Similarly, a study on road infrastructure in the Philippines has found that rural roads generate the largest impact in terms of income growth. The same study revealed that rural household's production and income-generation potential is optimized with access to networks that alleviate their isolation (Barrios 2008).

Bhattacharyay (2008) has identified a number of major roles for infrastructure in regional socio-economic development and integration. First, basic infrastructure promotes economic exchange among various sectors of an economy, both locally and internationally. It provides greater access to key inputs for economic growth, such as resources, technology, and knowledge. Second, infrastructure improves socio-economic and environmental conditions by providing basic needs and utilities such as roads, water, sanitation, hospitals, clinics, schools, environment-friendly power, and telephone lines—all of which are part of the United Nation's Millennium Development Goals (MDGs). It can reduce: (i) non-income poverty by facilitating the poor's access to basic services; and (ii) income poverty by increasing economic opportunities and income generating capacity, particularly for poorer groups and communities in remote areas. Third, it enhances physical connectivity both within and among countries, facilitating the movement of goods and services. Soft infrastructure—such as modern technology and improved customs procedures and trade rules and regulations— improves logistics, resulting in reduced trade costs and the speedier movement of goods and services. Fourth, greater regional integration through enhanced physical connectivity supports trade and investment (including FDI) expansion, and financial market development.

CBI provides economies with greater access to regional and global markets. It promotes efficient production, trade competitiveness, and trade flows, by allowing businesses to join the regional production network and supply chains. This gives small, landlocked, low-income economies the opportunity to narrow their development gap with richer ones. Finally, CBI allows regional economies to share scarce regional resources such as energy, capital, and services.

2.3 The Importance of Infrastructure in ASEAN Development and Regional Integration

An important area of ASEAN cooperation is binding ASEAN countries closer through efficient infrastructural linkages in transportation, telecommunications, and energy (Ong Keng Yong 2004). Achieving regional infrastructure integration is one of ASEAN's most challenging tasks, given the region's geographic, size and economic diversity. The challenges notwithstanding, developing CBI should be one of ASEAN's primary goals.

The ongoing global economic crisis has had an adverse impact on the economic growth and export performance of ASEAN countries, as export demand in advanced economies has decreased. As such, regional demand needs to be enhanced through increased intraregional trade, to compensate for the fall in export demand in advanced economies. In this difficult time, CBI can play an important role in strengthening regional physical connectivity to promote intra-regional trade.

Economic integration in East Asia, and most ASEAN countries has been primarily marketdriven (bottom-up approach) , through trade and FDI; however, integration has reached a critical stage where further advances will require the development of a region-wide political institution (Fujita 2005; Kawai 2004). In recent years, East Asian countries have been working to establish more government-level agreements, to enforce de facto market-driven integration founded on common production bases across the region (Watanabe 2006). A top-down government-led and market-creating approach will be appropriate at this stage. A similar “multi-track and multi-speed approach” should be used for ASEAN infrastructure integration (Kuroda 2006).

To build up infrastructure, ASEAN members should utilize their own national resources, as well as tap those of other Asian countries. The role of ASEAN, then, is to ensure cooperation and coordination of its members' infrastructure projects (ASEAN 2008a); harness shared resources, such as capital, energy, services and technology; harmonize cross-border rules and regulations; and facilitate exchange of good practices on institutions and policies. Such cooperation can potentially follow a two-track approach, namely: (i) cooperation in building and operating CBI; and (ii) cooperation in financing infrastructure development. Enhancing ASEAN connectivity through CBI requires strong commitment and partnership among ASEAN governments.

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