|
Competition, entry, and the social returns to infrastructure in transition economies
This paper presents a simple model for analysing the contribution of
investments in physical and institutional infrastructure to the transition
process. In addition to the direct cost savings, infrastructure investment
generates important indirect effects, or transition impacts. The model shows
that, by reducing transaction costs, infrastructure intensifies product market
competition. This leads to more effective weeding out of the existing
high-cost firms in the market. In this model, infrastructure also increases
the incentives for low-cost firms to restructure, which generates additional
efficiency gains, but exacerbates the existing cost asymmetry in the economy.
Lastly, infrastructure investment enhances the incentives for relatively
low-cost firms to enter the market, and thus improves the efficiency of the
entry process. The importance of these transition impacts of infrastructure
depends on features of the economy, such as the degree of cost asymmetry among
firms, the proportion of high-costs firms, the cost of restructuring, and
entry costs for new firms.
|
|
