Lesson 3: Develop infrastructure

Infrastructure is extremely important to the growth of nonfarm activities, which need urban amenities and services to take root. A vast fund of empirical study analyzes the relationship between infrastructure and the diversification of economic activity in the rural sector. Some of this evidence suggests that a relationship between infrastructure building and growth cannot be derived for developing countries, but sectoral analysis suggests that road transport yields respectable returns. By building rural infrastructure, China, Indonesia, and Taiwan (China) promoted rural development, whereas the lack of infrastructure constrained off-farm activities in countries such as Kenya, Ethiopia, and Tanzania. Research suggests that rural industry needs power to run machinery, roads, and transport facilities to carry goods to the market; communication services to allow producers to keep in touch with markets and suppliers; and, possibly, serviced land with water and sewerage lines. Roads, transport, and electricity are also valuable to agriculture and have contributed to productivity growth and growth of production for the market. Of these, transport and communications take priority. Rural industries can generate their own power, albeit at higher costs. They can also arrange for water and waste disposal. Road infrastructure and communications are more problematic, although wireless and satellite systems are gradually reducing dependence on wired facilities. Typically, transport and communications services (and other services) are best near cities.