The Role of Communication Infrastructure Investment in Economic Recovery
The recent economic downturn has led policy makers in OECD countries to consider fiscal policies to help return their economies to growth. Most of these plans involve large government expenditures to support demand for goods and services while simultaneously increasing the longer-term productive capacity of the economy. Investments in network infrastructures such as electricity, gas, water, transportation and communications are key elements of most packages due to their immediate impacts on demand and employment as well as their strong potential to expand future supply. Broadband infrastructure, in particular, can be a good target for economic stimulus spending because many projects can be initiated relatively quickly, are labor-intensive, can minimize economic leakages, and may promise stronger marginal impacts on supply and productivity than investing in established networks such as electricity, gas, water and transportation. The strongly pro-cyclical nature of communication network investment also means that skilled labor and equipment may be left idle and planned projects shelved until the economy improves. This labor and equipment could be quickly shifted to government-sponsored projects. At the same time, governments must ensure that interventions do not interfere with properly functioning markets or displace private investment. This paper argues that policy makers need to evaluate the costs and benefits of any public investment in telecommunication infrastructure and select projects which can deliver both strong immediate aggregate demand effects, such as through the employment created by rolling out the networks, and strong longerterm aggregate supply-side effects, which can improve the productive capacity of the entire economy as an improved foundation for commerce and communication.