class: center, middle, inverse, title-slide # <rr>Markets and Infrastructure</rr> ## Economic Development & Construction 0008 ### <img src="images/cover1.png" /><br> <a href="http://www.aniket.co.uk/">Dr. Kumar Aniket</a> ### Lecture 5 --- class:inverse,center,middle # Markets, Specialisation and Urbanisation --- # Robinson Crusoe - In Daniel Defoe's novel, *Robinson Crusoe* gets stranded on an island and survives by making do with anything he could find on the island - Let's imagine Robinson Crusoe was a skilled craftsmen, extremely valued for his pottery skills in the rest of the world - Once he was stranded, he had to produce everything on its own. - This would be **inefficient** because the times he could spent producing beautiful poetry and earning large sums, he was spending finding food. - If he could trade, everyone could be potentially better off `\(\ldots\)` - .embb[Inefficiency] resulted from the fact that he was cut off from the markets across the world that would have allowed him to **specialise** and be at his **productive** best. --- .emn[**Notes** The Robinson Crusoe example helps you understand how a economy benefits from specialisation. Here an **economy** can be defined as a country, community or region. Without transport and communication links to the rest of the world, a society cannot buy and sell in global markets. The society is isolated and becomes an autarkic economy, i.e., the economy has to produce everything on its own. The Ricardian principle of **comparative advantage** simply says that it better for economies to specialise rather than to produce everything on their own. To specialise, they need markets where they can sell what they have specialised in and buy the rest of the good needed to survive. The smaller the economy, the more opportunities it loses when it is in a state of autarky. A small village in Sub-Saharan Africa with no road it just such an autarkic economy. That's why Kenya road building programme has the potential to change the fortunes of any area.] --- # Markets and Specialisation - A region cut-off from the markets has to produce everything on its own and it is inefficient for the same set of reasons. - Without access to markets, factor inputs are deployed to produce a large range of things. Access to markets allows the region to specialise in a narrow range of things that those factors inputs are best at doing. - This follows from **Ricardian principle**¹ of *comparative advantage* - the most important principle in Economics - With specialisation the output of the economy increases, which facilitates **private capital accumulation** through the *savings-investment channel* and** public goods provision** through the *fiscal channel*. .footnote[ [1] You can read further on the Ricardian principle of comparative advantage Core-Econ [Section 18.4 ](https://core-econ.org/the-economy/book/text/18.html#184-specialization-and-the-gains-from-trade-among-nations). ] ??? If workers **specialise** in the task they are better at, then are more productive than they are if they do a range of things. The same logic applies to firms and economies. Similarly, firms that specialise are better are more productive. But, firms and workers need markets access in order to specialise, i.e., produce what they are most productive at and use the market to buy the rest of goods and services they need from the market. Without access to markets, people would have to produce everything on their own. This is the basic principle behind markets. The lower the cost of accessing the markets, the more people are able to specialise. As we saw from the Kerala fish market example in Lecture 3, markets work better if the transaction cost of acquiring the information about price in the market is low. The general principle is that transport and communication infrastructure is important for markets to work. --- # Infrastructure Definition 3 different definitions are usually used. - Large capital intensive natural **monopolies** such as highways transportation facilities, water and sever lines and communication systems - Tangible capital stock owned by the **public sector** (government) - **Public goods** provided by the public sector that are either not provided or under-provided by the private sectors. --- # Market and Infrastructure - Without access to markets, regions cannot specialise and get left behind - Infrastructure is key for accessing market - Three critical types of infrastructure are - **Transport infrastructure**: reduces the transaction cost of accessing markets, both for buying and selling goods - **Communication infrastructure**: reduces the cost of acquiring information, allowing firms and consumers to make key strategic decisions - **Electricity** (Energy): inexpensive source of light, mechanical and computational power. It .embb[complements] the workers ability to carry out tasks, dramatically increasing their productivity (measured as output per-worker). ??? *Transport and communication infrastructure* increases **market access** and allows firms to sell what they have specialised in and but the other goods they needs, i.e., their factor inputs. Think of the how markets have allowed Silicon valley to specialise in software and high-tech devices that they sell across the world. Without access to markets, they would be never been able to specialise and iPhones may never have been invented. Other examples of specialisation are London export financial services to the rest of the world or a small bunch of villages in Gujarat specialising in cutting diamonds and most of world's diamonds passing through their hands. *Transport and communication infrastructure* lower the **cost of accessing the market** (as in Jensen, 2007) which in turn makes the market work more **efficiently**. *Electricity* gives firm **cheap mechanical** and **computing power**, which allows workers to become more **productive**. **Productivity** is defined as output per worker. A worker with an electric machine is able to produce far more than she or he is working with their hands on their own. Think of the example of making t-shirts. Workers in firms that have electric sewing machine are far more productive than they are in firms with manual sewing machines. Electricity is very expensive to produce at the firm level, but much cheaper to produce at the level of the country. This is because **electricity production** has *increasing returns to scale*, (i.e., it is cheaper to produce at a larger scale) and *setting up electricity's distribution network* is a **public good**, i.e., it is a non-rival and non-excludable good. Remember the discussion on how setting up the mobile phone network was a public good, i.e., it was non-rival and non-excludable as a good in Lecture 3. --- # Urbanisation It is difficult to ensure adequate level of infrastructure in countries with low population density Urban concentrations (agglomerations) can often help in early stages of developed as it allows a country to provide public goods (infrastructure) at low cost - **Collier and Venables (2016)**¹: the per-capita cost of providing public goods in urban area is lower Africa and Latin America have relatively low populations spread over mountainous spaces. This makes development a particular challenge in those areas. .footnote[[1] P. Collier and A. J. Venables. Urban infrastructure for development. Oxford Review of Economic Policy, 32(3):391–409, 2016.] ??? The lower the population density, the higher the cost of providing infrastructure for transport, communication and electricity. Urban agglomerations have been key to starting off the development process. This is because public goods have to be funded from tax resources. Developing countries lack tax resources. Higher the population density in the area, the lower the cost of providing the public good to the population in the area. Hence, with limited tax resources, it is easier to provide public goods in urban areas and start a growth process and then increase the public good provision in the rest of the country as the economy grows and the government has more tax resources. --- # Population density  ??? Amongst developing countries, Africa and Latin America stand out in terms of low population density. This increases the challenge of giving people living in these countries access to market that would allow them to specialise in what they are most productive. Amongst developed countries, North America and Australia stand out in terms of low population density. Countries in these areas have been able to invest public capital and provide public goods that are able to counter-act the problem to low density. --- # Population: patterns - Asia and Europe have a high population density per square kilometre - North America have a relative low population density - .emb[High population density] can a be an advantages as it lowers the cost of public goods provisions like transport, electricity and communication. - Transport, energy (electricity) and communication is critical for **production** and development of **markets**. - Development of markets are, in turn, critical realising the gain from **specialisation** within the economy. ??? Developed countries that started with low *population density* have been able to overcome the problem. The key to solving the problem is to increase economic growth. As economic activity increases, so does the tax resources in the country. This gives the government enough tax resources to provide public goods. Without economic growth there are no tax resources and government cannot provide public goods. Once there are tax resources, they should be spent in a way that maximise the long-term prosperity of the economy. As we saw in Burgess (2015) in Lecture 4, road building was influenced by **ethnic favouritism**. Kenya's economic growth was higher than the rest of the Sub-Saharan Countries in the 1960s and early 1970s. Burgess (2015) show that ethnic favouritism altered the pattern of road building during the autocratic period. We also saw that Kenya's economic growth rate decreases to a level below the Sub-Saharan Countries following the autocratic period. --- class:inverse,center,middle # Solow Growth Model --- # Solow Growth Model **Assumptions:** .embb[Constant returns to scale] - allows aggregation. .embb[Diminishing marginal product of capital] - leads to convergence to steady state. - if public and private capital are **complements**, then public capital makes private capital more productive .embb[Perfectly competitive markets] - they allocate goods to its right use and ensure that economy is Pareto efficient - If *markets clear*, then all .emab[mutually beneficial transactions] are undertaken and .emab[no economic surplus is left unexploited], i.e., it is a *Pareto efficient outcome*. --- # Markets Three are number of different types of markets: - Market for **labour** - Market for **consumer goods** (consumption) - Market for **capital goods** (investment) - Market for **savings** and **credit** (banking sector) --- # Solow Growth Model Why do countries remain persistently poor? - Low saving rate `\(s\)` - High depreciation rate `\(\delta\)` - High population growth `\(n\)` - Low rate of growth of productivity `\(g=\frac{\Delta{A}}{A}\)` - in steady state, the per-capita income grows at the rate of `\(g\)`. - If `\(g\)` is low, per-capita income grows at a lower rate. --- # What is `\(A\)` Abramovitz (1956): `\(A\)` is our "measure of our ignorance" We can measure output, capital and labour We can then attribute growth of output to growth of capital and growth of labour. `\(A\)` is the part that we cannot attribute to anything. **Cobb-Douglas Production Function:** `$$Y = K^\alpha (AL)^{(1-\alpha)}$$` **Total Factor Productivity** `\((A)\)`: $$ \frac{\Delta{A}}{A} = \frac{1}{1-\alpha} \left[ \frac{\Delta{Y}}{Y} - \alpha \frac{\Delta{Y}}{Y} - (1-\alpha) \frac{\Delta{K}}{K} \right] $$ --- # Productivity Measures There are two distinct ways of measuring productivity &nbsp; **Output per worker**, i.e., `\(\frac{Y}{L}\)` - it does not disentangle the impact capital and other factors have in marking labour more productivity &nbsp; **Total Factor Productivity**, `\(A\)` - it measures increase in output that is not due to either capital or labour. --- class:inverse,center,middle # Misallocation Hypothesis --- # Misallocation Hypothesis The **misallocation hypothesis**¹ states that the output of the economy is low because the factor inputs like capital and labour are sub-optimally allocated within the economy, i.e., they are not allocated where they would maximise the output - If the capital and labour are correctly matched, they can produce the highest possible output - If they are incorrectly matched, the output is sub-optimal. Scope for Pareto improvement. .embb[Well-function market] help an economy attain a .emab[Pareto efficient outcome] **Misallocation** occurs if markets do not function properly .footnote[[1] Hsieh, Chang-Tai, and Peter J. Klenow. "Misallocation and manufacturing TFP in China and India." The Quarterly journal of economics 124.4 (2009): 1403-1448.] --- #Misallocation example: Banking Firms invest so that **marginal product of capital** is equated to rate of interest at which they can borrow - If a firm can borrow at a lower interest rate, it will invest more and have a higher capital per worker (have higher capital stock) - .embb[Access to credit] at lower interest rate allows firms to increase their **capital per worker** In developing countries, **rural areas** are not part of the .embb[saving investment channel] - Banks usually locate within profitable market segments in urban areas. Rural areas either have no banks and no access to credit from the banking sector .emob[Burgess et al. (2005)] examine whether the state led expansion of credit and saving facilities led to reduction of poverty in India --- ### Banking in India .pull-left[ **Branch licensing rule (1977-1990):** A bank must open 4 branches in "*un-banked*" locations to be eligible to open one in an already *banked* location.] .pull-right[ <img src="images/lec5/burgess_pande3.png" width="100%" style="display: block; margin: auto;" /> ] .pull-left[ Between bank nationalization in 1969 and financial liberalization in 1990, over 30,000 bank branches opened in rural, un-banked locations. **Population per bank** was high in most states in 1970 and decreased significantly over the next decade.] .pull-right[ <img src="images/lec5/burgess_pande2.png" width="120%" style="display: block; margin: auto;" /> ] --- ### Banking and Poverty Alleviation .pull-left[ They find that 1 % increase in the share of .embb[credit] disbursed by rural branches .emab[reduce rural poverty by 1.52%] and 1% increase in the share of .embb[saving] held by rural branches .emab[reduce rural poverty by 2.22%].] .pull-right[ <img src="images/lec5/burgess_pande4.png" width="90%" style="display: block; margin: auto;" /> ] &nbsp; .pull-left[Per-capita output in non-agriculture sector increased significantly, most likely to due to higher capital worker.] .pull-right[ <img src="images/lec5/burgess_pande1.png" width="90%" style="display: block; margin: auto;" /> ] --- ### Bank Branches Across India <img src="images/lec5/burgess_pande6.png" width="90%" style="display: block; margin: auto;" /> --- ### Poverty Across India <img src="images/lec5/burgess_pande5.png" width="90%" style="display: block; margin: auto;" /> --- # India's Growth Story <img src="images/lec5/india_growth.png" width="100%" style="display: block; margin: auto;" /> **Average growth rate** of per-capita income in India .embb[increased] after 1979. It was also .embb[less volatile] after 1979. --- # India: Firm Productivity Distribution Firm level productivity distribution has shifted left between 1980 and 1987. <img src="images/lec5/india_states.png" width="100%" style="display: block; margin: auto;" /> --- # Misallocation Example: Discrimination **Hsieh et al. (2013):** - 1960: 94% of doctors and lawyers were white men - 2008: 62% of doctors and lawyers were white men **Biskupic, 2006:** Sandra Day O’Connor — future Supreme Court Justice graduated third in her class from Stanford Law School in 1952 and the only private sector job she could get was as a legal secretary initial. **David Blackwell**, of contraction mapping fame, was the first African American inducted into the National Academy of Sciences and the first to be tenured at U.C. Berkeley. He completed his Ph.D. at age 22. He was not permitted to attend lectures at Princeton and was denied employment at U.C. Berkeley for racial reasons. .thebox[ Discrimination is similar to favouritism. Both lead to misallocation of resources in the society. ] --- # Hseih and Klenow (2009) Study **misallocation** in manufacturing plants in China, US, and India - Find huge **productivity differences** ($A$) across firms - Further, find significant misallocation of inputs within firms, i.e., wrong ideas about how to combine labour and capital Results suggest misallocation may be a significant factor in explaining the **development gap**, i.e., difference between per-capita income of rich and poor countries Potentially explains up to 40-60% of **productivity gap** between India and United Staes and 30-50% China and United States --- class:inverse,center,middle # Railways ??? Railways can dramatically lower the cost of moving people and freight (goods) across large distances. This is especially important for countries with low population density and landlocked countries, where people are separated from each other across large distances. The large distance is hinderance in terms of trading with each other. Hence, there are few markets and people and firms are more likely to produce things that are consumed locally. In doing so, they forgo the opportunity to specialise at what they are best at. Even though railways are extremely cheap in delivering things over large distances, they are less flexible in terms of delivering goods over shorter distances, i.e., getting goods closer to the door step. Roads have a comparative advantage over shorter distances. Most ancient market towns have been formed along water bodies, i.e., along rivers or on port towns. E.g., New York, London, Venice, Tokyo, Shanghai, Varanasi, Mumbai and Istanbul. This is because without technological advances, moving people and goods across waterways was much cheaper. --- # Rail Network Rail networks were the radical new .ema[low-cost land-based transport network] in most parts of the world when they first constructed in the 19th century - they were particularly useful for *large landlocked areas* which were relatively flat, i.e., United States, India Railway networks are .embb[public goods] and have .embb[increasing returns to scale] - The up front cost of constructing a new rail line is extremely high - This explains why developing countries find its difficult to expand their rail network - Once the front cost of constructing a rail network has been undertaken, its reduces the cost of carrying people and freight dramatically ??? Railways have the potential of connecting landlocked areas to the markets in the rest of the country and the rest of the world. Even though they dramatically lower the cost of moving goods across space, they are extremely expensive to build in the first place. This is simply because of **increasing returns to scale**. A small railway network has very little use. The benefits from the railways increase only as the scale increases. Hence, larger the railway network within the country, the more benefits accrues to the people and firms who can use this network. This pattern of increasing returns to scale is a general principle and applies to all infrastructure project. The larger the scale, the more benefits accrues to the people and firms who can use that infrastructure. With this context, it is easy to see why the extensive railway network the British Raj built in India in the 19th century had a huge impact on its regional market. India was largely landlocked and market and different regions were not integrated in the early 19th Century. 67000 km of railways was built between 1853 and 1930. This dramatically changed the cost of moving goods and people across large spaces. Given there was not telecommunication in that period, the only way people learnt about prices was through travelling back and forth from markets. --- # Donaldson (2018) ¹ In 19th century, India was an exemplar of a non-integrated internal market - British Raj constructed 67000 kms of rail tracks in India from 1853 to 1930 - As a result of the construction a national market was established and large parts of India were able to access the national markets to both buy and sell Donaldson (2018) finds that - its **reduced** inter-regional price differentials - districts that got integrated **gained** 16% more agricultural income relative to those that did not .footnote[ [1] Donaldson, Dave. "Railroads of the Raj: Estimating the impact of transportation infrastructure." American Economic Review 108.4-5 (2018): 899-934. ] ??? Railway network connected some parts of the country and bypassed some parts of the country. The cost of moving people and goods across space decreased significant for places on the railway network. Donaldson (2018) shows that districts that on the railway networks gained 16% more agricultural income as compared to districts that were not on the railway network. Donaldson (2018) also finds that overall the price variation across different regional markets deceased by once the railway was constructed. If you want to understand exactly why the price variation decreased, you just have to think about Kerala Fish market. It is exactly the same price. Railways decreased the cost of acquiring information about market price and that in turn ensured that producers were able to send things to the right market. This meant there were fewer markets with excess demand or excess supply in their markets. Prices decreased exactly the way they did in the Kerala Fish market once the mobile phone network was in place. --- # Total rail length per capita  ??? - **Rail length per capita** is the length of railways per capita (where population is in millions). There is an interesting pattern here. North America and Australian sub-continent start with a very high rail per-capita. Their rail per-capita is much higher than other regions of the world, including Europe. This simply reflects the low population density North America and Australian sub-contingent had to start with in the in the post way years. The population density in Western Europe was much higher. The railway network played a critical role in counteract the disadvantages of low population density. Over time the role railways played in moving goods decreased as road network expanded. The role the railway network played in transmitting information across market decreased as cost of communication decreased. Analyse this graph and compare it the graph on the population density, road per-capita and phones per-capita. --- # Rail: patterns - Rail per-capita has declined in North America and Australian sub-continent - It remain constant in most other parts of the world, i.e., the total length of railways has kept pace with the population - Transport infrastructure, i.e., roads and railways together, can both facilitate growth if provided adequately and constrain growth if they are under supplied. - The challenge for Africa and Latin America is to increase the supply of transport infrastructure. ??? Africa and Latin America have the same problem that North America and the and Australian sub-contingent had. People live across large swathes of land and the cost of transport and communication is relatively high. Countries in these regions need to find resources to invest in public goods. With low tax-revenues, the challenge is to find sufficient resources to invest in transport infrastructure, i.e., railways and roads. This remains a significant constraint for economic growth. --- class:inverse,center,middle # Roads ??? Section on Roads --- # Roads Roads require less to build as compared to the railways Road are more flexible in terms of the part of the country they connect. Roads have a high rate of depreciation rate and are difficult to maintain in good condition as compared to railways. Both roads and rails are **public goods** and require state involvement in terms of its provision - Roads and rails complement each other. - Railways are more efficient for moving freight across large distances while roads are better at moving freight across smaller distances ??? Roads are easier to build in the developing countries because 1. roads quality can vary and substandard roads can serve some purpose 2. While sub-standard roads can still serve a purpose, sub-standard railways do not work. If any part of the railways track is out of action, the lines goes out of action. Road and railways are complement each other to a large extent in providing the economy with a transport network that facilitates market transactions and specialisation across all regions of the economy. --- # Road per capita  ??? **Total road length per capita** is the length of total roads per capita (where population is in millions). The roads per-capita is higher in the developed regions as compared to developing regions of the world The road per-capita has increased over time in developed regions while it has remains virtually constant in the developing regions of the world. --- # Roads: pattern - Road length per-capita is much higher in developed parts of the world relative to the developing parts of the world. - Low road length per-capita can be a potential constraint on the economy by reducing access to markets, especially in the rural areas. - As we have noted, access to markets is critical for specialisation and flourishing of economic activity. ??? Road per-capita signify how easy it is for people and firms in the country to access the road. The lower the roads per-capita, the less access people and firms have to markets. Roads per-capita can constrain the ability of the firms to access markets and specialise in producing what they are best at producing. If roads per-capita remain constant in the country over time, it restricts the growth of markets and constrains the economy from growing. --- class:inverse,center,middle # Communication --- # Communication Transport network played two distinct roles in the past - allows goods and people to move across space - allows information to flow with people as they moved from one place to another As the cost of communication has decreased relative to the cost of transport over time, flow of information across space can be facilitated through the communication networks - Establishing and ensuring that communication networks are maintained is a key part of public goods provision for the government - It is particular lucrative for low density regions of the world that remain under-developed, i.e., Africa and Americas. ??? We saw a specific example in the Kerala fish market example of how communication infrastructure increase the efficiency of the market. Information is key in terms of making sure the goods flow to the right place. Without information, a lot of goods end up at the wrong place. This leads to wastage and increase the price for consumers and decreases the profit margins for the firms that are supplying these goods. In the past, without communication networks, people carried information with them as they travelled. Postal network reduced costs to some extent. Telephones and internet subsequently brought it down significantly. Establishing a communication network is a public good. What the country needs to do is establish the regulatory framework to establish a communication network, i.e., for phones or broadband. Just like once road are built by the government, the firms can transport their goods on them, in the same way, once the regulatory framework for the communication network has been established, private providers can provide their service over the network. Establishing a communication network is the public good. It is non-rival and largely non-excludable. Once this has been done, private providers can be invited to provide the actual service over the network. --- # Total phones per capita  ??? **Total phones** in the next slides is the number of landline and mobile phone connections combined. **Total phones** per-capita is the total phones divided by the population (in millions). Till 2000 we find that developing countries lagged behind the developed countries in terms of total phone per-capita. The data in this graph is only till 2000. This *pattern have changed since 2000* and now the developing countries are catching up to the developed countries quite fast. --- # Phones: patterns Total phones per-capita has increased over time across all regions with the exception of regions in Africa Roads and rail have very high increasing returns to scale properties, i.e., they have a high up-front fixed cost Establishing the regulatory framework for a communication network has a much lower up-front cost that roads and railway. Hence, it is easier for the developing countries to catch up to the developed countries in terms of communication networks. ??? Providing an adequate level of transport network was always a challenge for the developing countries, especially the ones with a low population density. As communication network become cheaper they can carry some information that transport network would have carried in the past. As we saw in **Donaldson (2018)** earlier in the lecture, the building of the railways during the British Raj in India significantly decreased the inter-regional price differentials. The fact that cost of communication has dropped significantly is an additional help for the developing countries. Hence, establishing communication networks can allow the developing countries to catch up with the developed countries faster. --- class:inverse,center,middle # Electricity --- # Electricity Electricity is source of mechanical power, computation power and light for firms and household. It is difficult to over-estimate its ability to transform societies. Establishing and ensuring that communication networks are maintained is not a key part of public goods provision for the government ??? Electricity increases the productivity of workers. Productivity of the workers is the key parameter in the Solow Growth model. Economy's per-capita income increases with worker's productivity. --- # Electricity Generating Capacity per capita  ??? Electricity is the source of mechanical and computing energy for firms. It is cheaper to produce electricity at the level of the country than it is for each firm to produce electricity on their own. A country that is not does not have adequate electricity generating capacity constrains its firms from competing with firms from countries that provide adequate electricity. --- # Electricity: patterns **Electricity generating capacity** in per-capita terms has increased significantly over times in developed regions of the world where as it has remained constant over time in the developing regions of the world. - Electricity generating capacity is likely to be a **binding constraint** in developing countries. - Recall that setting electricity generation and distribution has characteristics of a **public good**. Electricity exhibits .embb[complementarity] with both **capital** and **labour**, i.e., it has the potential of making both capital and labour more productive - Electricity is a source of **mechanical** and **computing** power enabling capital to be more productive - Electricity helps create **conditions for workers** that makes it easier for them to work, i.e., light, fans, sewage system, `\(\ldots\)` ??? Electricity generating capacity per-capita is a key indicator that tells you the state of the infrastructure in the country. Electricity generating capacity per-capita also is an indicator for whether the lack of infrastructure is constraining the per-capita economic growth of the country (See Lecture 1 and 2). --- # Summary Increasing the supply of **transport and communication infrastructure** is critical for increasing productivity of the labour through specialisation, which results from market access. Electricity is cheap mechanical and computing power for the firms. Increasing the electricity generating capacity is critical for increasing the productivity of labour. A developing country finds it difficult to find resources to construct large scale transport infrastructure project. Really poor countries also find it difficult to find resources to organise and establish communication network and electricity generating capacity. - It is because there is not enough economic activity in the economy that can be taxed. Hence, developed countries are low on tax revenues (Aniket, 2018). --- # Summary The meagre tax resources developing countries have need to spent judiciously in providing infrastructure that in turn will create economic activity and generate greater tax revenues. The two important **prescriptive lessons** from the literature so far is - Markets are key in order to specialise and increase labour productivity - It is important not to waste resources by misallocating them as in Burgess et. al (2015) - Urbanisation increase population density and reduces the cost of infrastructure provision, which can be a way to kick the start the process - The lower the population density and the larger the part of the country that are landlocked, the greater the hurdle in providing adequate levels of infrastructure in order to kick start the growth process --- # References Abramovitz, M., 1956. Resource and output trends in the united states since 1870. American Economic Association Papers Proceedings. 46 (2), 5–23. Biskupic, J., 2006. Sandra Day O’Connor: How the First Woman on the Supreme Court Became Its Most Influential Justice. HarperCollins, New York, NY. Hsieh, C.T., Klenow, P.J., 2009. Misallocation and manufacturing TFP in China and India. Quarterly Journal of Economics. 124 (4), 1403–1448. Hsieh, C.T., Klenow, P.J., 2014. The life cycle of plants in India and Mexico. 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