The vital role of infrastructure in economic growth and development

In 1956, in an America recovering from the economic and psychological consequences of World War II, President Dwight D. Eisenhower signed into effect a bill that authorised the construction of an interstate highway system. The lasting effects of that decision were profound for both the American economy and the morale of its people. Eisenhower predicted that government investment in infrastructure had the power to stimulate the economy in the short-term and create the conditions for longer-term prosperity and growth for future generations. Today, Eisenhower’s decision to invest in public infrastructure is regarded as a key factor that contributed to the era of American prosperity that followed.

The COVID-19 pandemic has produced similar conditions of global upheaval not seen since the 1940s. The stress placed on our structural systems has revealed their vulnerabilities and limitations, and the impact on our global economy is likely to be long-lasting. Subsequently, this is a period of great uncertainty but also great possibility. We have collectively been presented with an opportunity for what the World Economic Forum has called a global ‘Great Reset’. Now is the time to take stock of where we are and decide where we’d like to be.

As G20 economies continue to stabilise, the emphasis in spending will naturally shift from mitigating the immediate crisis of the pandemic to an investment in stimulating economic recovery and facilitating medium and long-term growth and stability. The present challenge for the world’s nations is to best direct their limited resources where they will have the greatest impact.

The case for infrastructure investment as a stimulus

Infrastructure investment has a strong impact on economic growth, as evidenced by a 2020 GI Hub study that found the economic multiplier for public investment (including infrastructure) is 1.5 times greater than the initial investment in two to five years – much higher than other forms of public spending.

The study also showed that the infrastructure outcome was a factor that influenced the positive effect of the investment.

This analysis suggests that infrastructure investment can play a key role in supporting economic recovery and stability, however simply investing in infrastructure is insufficient. It needs to be the right kind of infrastructure that has transformative outcomes for the people and the planet.

The right kind of infrastructure

In order to have the greatest impact on stimulating economic recovery in the short-term and lasting stability in the long-term, infrastructure should be sustainable, resilient and inclusive. This type of transformative infrastructure can help produce prosperity for all.

Transformative infrastructure is infrastructure that provides lasting social and economic value for everyone, produces long-term prosperity for future generations and creates the conditions to transition towards a resource-efficient, sustainable economy. It's designed with the flexibility to respond to future trends and challenges, able to adapt to technological improvements, and incorporate better solutions as they become available. Transformative infrastructure is therefore longer lasting and more resilient, meaning it can adapt to crises better and provide more benefits over time versus more traditional infrastructure.

Transformative infrastructure is socially inclusive. Its design is guided by the notion of being beneficial to the greatest number of people. Infrastructure designed and implemented in this way will provide maximal utility to the largest number of people, increasing its stimulus effect and facilitating the goal of a more equitable world.

The next step

In November 2021, the GI Hub launched our newest resource, Transformative Outcomes Through Infrastructure. Its purpose is to uncover the G20 priorities that underlie the USD3.2 trillion of infrastructure investments announced post-COVID, and to help direct future spending into areas that could yield the greatest possible benefits for people and the planet.

With conscious decision-making we can plan, design and procure infrastructure projects that have the capacity to be resilient, sustainable and inclusive. This can allow us to realise the immediate short-term benefits of infrastructure investment in stimulating the economy across a range of markets and regions, and maximise the benefits and longevity of that investment going forward, all while moving towards a greener, equitable future.