Infrastructure Investment and Economic Development
Many politicians and economists have associated good infrastructural investment with economic development in a country. For instance, efficient transport system eases movement of employees within the country while an effective energy infrastructure supplies power to companies and organizations at lower rates. These arguments point out that state-led investment in infrastructure can help in boosting economic growth in other sectors in a country making an integral instrument of Keynesian economics (Inno, 2015, p. 12). Keynesian economics holds that government investment in the infrastructure can help a nation to overcome slow economic development and unemployment in its economy. Some of the approaches used in the demand side economics entail reducing the tax rates to increase the revenue in a country. These policies if successful should help a country to create more employment opportunities, improve the citizens’ living standards, and increase the country’s global competitiveness.
Supply-Side Economic Policies in the OECD Region
Supply-side economic policies within the OECD region aim at improving the productive capacity of the economy in member states by ensuring the long-term competitiveness of such economies. These countries employ different approaches to realize vibrant supply-side policy reforms. Predominantly, the countries employ market-led policy reforms, which aim at liberalizing the markets by giving the private sector more authority (Krueger, 2010, p. 87). In addition, OECD countries use government-led initiatives aimed at reducing inequality and market failures in specific countries. Supply-side policies normally influence both short-run and long-run aggregate supply in a country. Nevertheless, many countries normally place emphasis on the long run aggregate supply LRAS. Therefore, the OECD governments should strive to introduce LRAS investments, which aim at lowering taxes and government regulations(Riley, 218, p. 1). Previous research has revealed that doing so enable the citizens to benefit from low cost of goods and services due to abundant supplies, which in turn increases employment opportunities in the member states.
Laffer Economic and Taxation Principle
Some of the countries in the OECD region apply the Laffer economic and taxation principle. The principle argues that government revenue increases with a reduction of tax rates in the country and vice versa (Heijman and Van Ophem, 2005, p. 714). Infrastructural investment contributes towards economic growth in a country particularly if they enhance activities in the black sectors of the economy. As stated earlier, demand-side economist posits that introducing friendly tax rates and deregulation would help countries in addressing economic stagflation (Heijman and Van Ophem, 2005, p. 715). The two scholars add that creating investment-friendly tax rates and eliminating unnecessary government regulations would attract foreign direct investment leading to economic growth. Governments from rich countries usually invest in roads, rail, energy, housing, and ports to improve the demand side of the economy. These projects enhance economic growth when implemented with adequate cost-benefit analysis and higher rates of return than what the private sector may offer.
Infrastructure Development and Economic Growth in the UK
Countries such as the UK strive to realize sustainable economic development infrastructural investment in the right areas. However, such a development must embrace the two primary aspects of economic growth aggregate demand and aggregate supply. Economic growth normally occurs when a nation realizes an increase in its aggregate demand (Pettinger, 2018). Various factors contribute towards the increase in a country’s AD. For instance, the government should create policies that promote lower interest rates by reducing borrowing costs to enhance the public’s spending and investment. Low-interest rates would also allow mortgage owners to have lower monthly mortgage payments (Pettinger, 2018). As a result, they will have a more disposable income to spend in the economy. Increase in real wages also increases the UK's aggregate demand particularly when the workers' nominal wage rising inflation rates. On the other hand, devaluation reduces the prices of exports while increasing import thus increasing demand within the country (Pettinger, 2018). Some of the regional investment policy such as The Northern Powerhouse Project can help the UK to maintain a stable aggregate demand over its peers.
Infrastructure Development and Productivity
Infrastructure development in a country results in growth in productivity, which in turn improve the welfare of the citizens. For example, the UK aims at using The Northern Powerhouse Project to realize a regional balance in economic growth in the country (Lee, 2017, p. 1). The country hopes to realize a more balanced regional recovery through the program. The project primarily targets the Northern UK cities such as Liverpool, Manchester, Leeds, and Hull, which have a high number of public jobs but has not realized significant economic growth since the end of economic downturncountry (Lee, 2017, p. 1). Part of this program brings together improvement in transport infrastructure, improved research and development, and utilization of renewable sources of energy in production. Notably, the Completion of Cross Rail HS2 and HS3 would allow the government to increase labor mobility across the country (Taylor, 2017, p. 56). Arguably, these measures would result in growth in aggregate supply in the UK as illustrated below.
Long Run Aggregate Supply and Economic Development
Economists the average growth in a country’s gross domestic product (GDP) as the long run trend rate. A country’s GDP significantly depend on various factors that affect its Long Run Aggregate Supply (LRAS). The increase in an AD would result in inflation in a country if it does not realize any increase in its Long Run Aggregate Supply (LRAS) (Pettinger, 2018). These arguments imply that the increase in a country's AD greatly relies on the economic situation of the country in question as demonstrated in aggregate supply curve below. A rise in both LRAS and AD leads to economic development without inflation. Infrastructural investment remains a primary driver in LRAS (productive capacity) of many developed economies (Pettinger, 2018). The UK has made investments in roads, transport, and communication to enable it to minimize costs and expand production in other sectors of the economy. Moreover, adequate infrastructure increases a country's competitiveness in the global market due to high GDP (Annoni and Dijkstra, 2013, p. 7). UK National Infrastructure Plan covers most of the programs including transport, roads, and rail that the country should deliver by 2021.
The UK's Supply-Side Policy Objectives
The UK uses different legislation to arrive at ten objectives outlined in its supply-side policy objectives. These strategies primarily aim at ensuring that the country has adequate incentives for the public to look for employment opportunities and invest in the citizens' skills and competencies (Pettinger, 2017). In other words, this involves increasing the capital and labor productivity among the citizens. Similarly, it requires the UK to initiate various infrastructure programs such as the Completion of Cross Rail to allow it improve employment opportunities by improving labor mobility across the country (Taylor, 2017, p. 56). Investing in research and development forms another core objective of the UK's side-supply intervention towards economic growth. Accordingly, this would enhance the country's competitiveness and encourage faster innovation and invention in the OECD region (Annoni and Dijkstra, 2013). On the other hand, the UK should offer tax relief and other related economic policies to encourage people to start and expand their businesses thus promoting the real GDP development and enhance the citizens’ living standards.
Pro-Market Approaches in OECD Supply-Side Policies
The OECD supply-side policies also employ pro-market approaches that allow countries to allocate their limited resources in the most pressing areas. Consequently, this calls for the development of favorable market forces within a country and in the OECD region (Pettinger, 2017). For instance, the UK strives to minimize government spending on various welfare programs and limits its borrowing at the same time. The country also strives to reduce business taxes to stimulate capital investments by locals and foreign citizens (Farrugia, 2004, p. 30). Apart from the pro-market policies, the government also introduces some state driven supply-side policies. The same author further points out that part of these includes the UK government investment in public service and critical infrastructures such as roads, rail, and roads. Import regulation policy to enhance the expansion of domestic companies and developing a friendly minimum wage that encourages the citizens to seek employment opportunities.
Conclusion
The discussions in this paper indicate that economic development in a country significantly depends on in the increase in its real GDP. The GDP of a country relies on consumer spending and productive capacity of a specific country. The assignment has primarily focused on the influence supply-side policies such as increased spending on infrastructure projects on boosting economic growth.The findings of the study indicate developed countries like the UK employs supply-side approaches to achieve other macroeconomic benefits such low inflation, low unemployment, and increased public living standards. Notably, efficient implementation of supply-side policies by increasing infrastructural investment can allow the country to increase employment opportunities, citizens’ welfare, and enhance its global competitiveness.
References
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