Infrastructure, Market Connectivity and Economic Growth

Topic Box from the 2006 Sixth Annual Benchmark Report

Canada's all-government infrastructure shortfall has been estimated at $125 billion for 2003, rising to between $200 and $300 billion over the subsequent 20-25 years. Another recent estimate of Canada's local government infrastructure only shortfall put it at $57 billion in 2002, rising to $110 billion by 2027 in the absence of action. However, there are many recent federal and provincial initiatives across the country aimed at addressing Canada's infrastructure weaknesses.

The cost of infrastructure investments makes selecting the most effective and beneficial projects crucial. Of course, determining which infrastructure investments will be most effective in triggering economic growth and which have the highest return for investments of scarce public funds, is by no means a straightforward process. First, it is important to recognize the difference between the state or value of infrastructure from an economic versus an engineering standpoint. For example, a given roadway in disrepair may be a target for funds from an engineering perspective, but if the road is underutilized and provides little contribution to local industry or business its economic value is marginal.

Traditionally, infrastructure investments have been measured in engineering and maintenance terms, by their quality or state of upkeep, as well as by their ability to improve access and mobility. But as decision-makers increasingly attempt to find better ways to allocate funds this method can be extended one step further to determining whether or not improved access and mobility could influence job creation or business location decisions, improve productivity, enhance access to a potential workforce or other important inputs to the production process, or to increase quality of life in the region – all of which may have positive impacts on economic growth.

Even with an improved understanding of how infrastructure investments should be weighed, there is still no easy way to make such decisions. The process is inherently complex with severe measurement difficulties surrounding assessing the value of both new and existing capital stock, as well as evaluating the future impact on the economy. Added to these complications are the fact that timing and location will also weigh heavily on value calculations – an infrastructure investment that is valuable in one place or at one time is unlikely to have the same value under different circumstances.

Similarly, most infrastructure projects provide space specific benefits, with the value of the investment declining with distance from its location, or even having adverse effects on nearby jurisdictions should it displace private investment or change the spatial pattern of business development.

Regardless of these measurement difficulties, asking the right questions while looking at infrastructure investments from the point of view of their economic potential is an important part of ensuring that limited public funds are spent on those projects which will trigger the most economic growth and quality of life benefits for British Columbians.

The table below provides a selection of useful capacity measures for given types of infrastructure, but is by no means exhaustive.