A SYSTEM DYNAMICS STUDY OF THE COORDINATED
DEVELOPMENT OF REGIONAL INFRASTRUCTURE
Qifan Wang, School of Management, Fudan University, CHINA;
FAX: 86-21-65453039; Email: chenzi@fudan.ihep.ac.cn c/o Operator
ABSTRACT
Regional economic integration is a trend of modern economic development, and to realize such
integration many supporting conditions, especially the coordinated development of regional
infrastructure need be satisfied. The coordination of regional infrastructure, however, requires proper
policies of the governments and cooperation among different areas as well.
INTRODUCTION
1. The Neglect of The Study of Regional Issues at Home In western countries, the issue of
regional economy has long been under discussion since the second half of this century, and the
study of and research on it have reached great depth. While in China, where economic plan
and economic management were, and actually are, mainly based on economic sector rather
than on economic regions, the issue of regional economy has been neglected. And the
theoretical researches on these issues were neglected likewise. In recent years, many proposals
have been put forward regarding the construction of economic regions That indicates much
importance has been attached to regional issues. However, theoretical researches still center
around the conventional theories of economic location and distribution of productivity,
regional strategy and industrial policy, and regional investment, etc. The very issues
concerning the coordination of development within an economic region, especially of
infrastructure, unfortunately, remain untouched. This is very crucial to regional development
and is the major matter we will deal with in this paper.
2. Regional Infrastructure and Its Nature Infrastructure, conventionally, refers to those
facilities and institutions which provide common condition and public service to the direct
production sectors and people's life, including transportation, telecommunications, power
supply, environment protection, education and other cultural factors. But the definition we use
here is a little different. We hold that infrastructure should include all the conditions that serve
as the support to direct production and people's life. It covers all the public facilities of
transportation, telecommunications, water supply and irrigation, etc.,; natural resources like
land, energy, raw materials, and water; and some of the sectors that belong to tertiary
industries like financial and insurance service. Usually, they are, in the input-output tabular, at
a high position. To summarize, it has the following features: (1) Shared use. (2) Non-
exclusive use. (3) Scale effect. (4) Public ownership, high investment, long lifecycle, and low
economic return.
REGIONAL DEVELOPMENT STRATEGIES AND THE ROLES OF
INFRASTRUCTURE
1. The Delimitation of Economic Region There are various ways for delimiting economic
regions, and two representatives are geographic method and administrative method. Each has
its advantages and disadvantages. The method used here is something of a synthesis of these
two. We delimit, for example, the Yangtze River Basin region as the administrative districts
along the Yangtze River, including nine provinces and a metropolis.
2. The Regional Strategies Since 1949 and Their Outcomes The regional strategies
regarding regional development since 1950s can be divided into two periods: (1) "Balanced
Development Strategy" period, which can be divided again into two sub-periods. The first was
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aimed to balance the coastal and inland areas, which is characterized by the style of "pointed
development" and heavy industry orientation. Emphasis was placed on the middle part of the
country then. This sub-period was followed by the so-called "Construction of The Great Third
Line" period, in which, many heavy industries and military industries were set up in western
China. This "balanced" disposition can also be seen in the construction of infrastructure. Take
the railroad network as an example. The newly built railroads were almost all located in the
inland areas. (2) "Non-balanced Development Strategy" period. During this period, the
strategy was characterized by. the pattern of "Gradient Push". It was aimed that by first
developing the coastal areas, through "diffusion effect", the inland provinces can be "pulled"
or "pushed" to co-prosperity. In such a situation, more investment went to light industries
which have the advantages of small investment, quick payback and high profitability often
than to infrastructures. This rendered unavoidable the supply shortage of energy, raw material
and transportation, etc., which in turn limited further development of regional economy and
became the "bottleneck" of the whole economy. (3) The trend of regional economic
integration. Recently, researchers and some government officials suggested that the
coordinated development of regional economy and the economic integration be the next step
of regional strategy.
3. The Goal of Regional Economic Development and The Preconditions of Economic
Integration The goal of the economic development of a region, we believe, should be a long-
term, steady development of the region as a whole. It is an integral rather than a partial
development. This is the coordination in space. It is also a goal of coordination in time, i.e., a
dynamic optimum.
To realize this long-term coordinated development of a regional economy, it is essential to
take account of: a)tech-economic structure; b)economic benefit structure to ensure fair
distribution of benefit among different parts; c)regional infrastructure to avoid the limits from
these things if they are neglected.
4. The Significance of The Coordinated Development of Infrastructure It clear that there
are two major factors concerning the economic development of a region: (1) economic
concentration; (2) transportation cost. To summarize: the development of regional economy is
determined by the degree to which the infrastructure limits it, and the limitation of
infrastructure is determined by its size, and more significantly, the coordination among its
spatial parts.
5. The Results of Coordinated and Uncoordinated Development: The Model's
suggestion (1) The present investment in infrastructure ( here transportation) in the Yangtze
River Basin is insufficient so that if this is to extrapolated into the future, the future output
will be limited by the shortage of infrastructure; (2) Too much infrastructure investment is not
favorable either since the investment in infrastructure has less return than ordinary industries;
(3) And well planned investment increase in infrastructure is more favorable than others, it is
preferred that great investment should be made in near future to remove the bottlenecks; (4)
Coordinated development is better than uncoordinated, as can be seen from the comparison of
assumption.
ANALYSIS OF THE PARADOXES IN THE DEVELOPMENT OF
INFRASTRUCTURE
1, The Ability of Infrastructure Self-balance and The Expansion of The Region Because
of the lack of natural resources or of some specific conditions a particular region may have no
way to balance the demand and supply of its infrastructure. For example, the following table
lists the demand for coal and the required freight of Shanghai in the next 20 years (forecasted
by the model). The conclusion is that, as a separate region, it is impossible for Shanghai to
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meet its demand infrastructure without falling back on other areas, to say nothing of
coordinated development. So, in order to realize the coordinated development, the territory of
the region must be expanded to such an extent as to be able to balance its demand and supply
for infrastructure.
Table 1. Some of the future demands of Shanghai (Extrapolated)
Year 1992 1997 2002 2007 2012
Coal(10,000 ton) 2877 5659 9252 14680 23050
Electricity (100 Mkw.h) 397 925 1926 3770 = 7015
HighwayTran.(10,000 ton) 9329 11850-13110» 13520-13820
2. The Inefficiency of Initial Allocation and Its Stickiness The initial allocation of an
infrastructure here refers to the initial construction or the accumulation before a certain time
point. Today's difference in economy between coastal, middle and western China is at least
partly attributed to the fact that there are good traffic conditions in north-south direction, and
poor in west-east direction. One indication of this kind of inefficiency is the co-existence of
idle and crowded infrastructures in different areas. What's more, the inefficiency of
infrastructure is sticky, because of the fixed nature of it. So, the only feasible way is to
reallocate them in the form of incremental investment. But reallocation, as will be discussed
below, has its own paradoxes.
3. The Inefficiency of Reallocation----Quantity and Structure
(1) Non-return or low-return of infrastructure Some public facilities’ benefit is included
in the consumers' surplus of the users. For some others, though some fees are charged, the
prices are below the normal price either because of economic policy or because of the inherent
price difference between primary and finished goods.
(2) The result of the local interest maximization --- inefficiency in quantity Infrastructure
has the nature of "quasi-collective goods" and shared-use, it makes the local government have
such an intention as to expect other districts and/or central government to invest first. (But the
financial power of the central government is weakening.) So the current pattern of investment
in infrastructure has the characteristic of insufficiency in quantity.
(3) The result of localism---Inefficiency in structure Another implication of local interest
maximization is that they only invest in those infrastructures that are urgent and have manifest
internal or external effects (mainly for this area). As a result, the capacity of the whole is
reduced dramatically. infrastructure also tends to be inefficient in spatial distribution.
4, The "Alienation" Phenomenon in The Development of Infrastructure
Under the principle of "comparative advantage", the provinces rich in resources are usually
Table 2. The relative weight of gross output of coal mining industry & relative GDP per capita (1993).
Province relative weight Order Relative GDP p.c. Order
Anhui 1.85 1 0.47 6
Sichuan 1.68 2 0.51 5
Jiangxi 1.37 3 0.54 4
Hunan 1.18 4 0.56 3
Jiangsu 0.33 By) 1.08 1
Hubei 0.17 6 0.68 2
Zhejiang 0.09 m 1.08 1
Note: 1) relative weight = (weight of output of coal-mining industry of the province) /(that of the country)
2) relative GDP per capita = (GDP per capita of the province)/(that of the country)
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encouraged and urged to concentrate on producing their "advantageous" products (service),
say,coal, but because these products usually have a subnormal price they don't bring much
wealth to their producers. So, the resources turn against their masters. This is a problem that
the market system can not solve, and our former planned system tended to aggravate this
unfairness. The resource-rich areas then are discouraged in their production, which reduces
the total supply of these infrastructures.
THE POLICIES IN THE COORDINATED DEVELOPMENT OF REGIONAL
INFRASTRUCTURE
1. First of all, ideologically, the cognizance of shared utility of infrastructure, shared
benefit among the sub-regions, and long-term and integral development of the whole
region must be established.
2. Market System and The Distribution of Benefit
the paper suggests, the subsidy policy of government should be adopted so that the
discrepancy between the equilibrium and the actual price can be compensated. After that, with
the adjustment of prices, when the two prices converge, the subsidy should be cut off
accordingly. .
3. Government Investment Infrastructure belongs to those types of industries which profit
little, so, even in the market setting, great government funds are still needed to be invested in
infrastructure rather than in processing industries.
4. Regional Ad hoc Committee Coordination
At the regional level, there should be a pan-regional authority, for example, "Coordination
Committee of Regional Infrastructure", consisting of the representatives from the member
provinces and areas and from the central government. This committee must aim at the long-
term economic development of the whole region and its decision should be made on the basis
of scientific investigation and careful analysis. It has the right and obligation to coordinate
between the difference member parts. It is to set up integral programming, settle disputes, and
supervise. This committee must be democratic, efficient, incorruptible and non-bureaucratic.
5. Regulating The Infrastructure
The law makers should enact specific regulation on who to use it and how to use it, who to
maintain it and how to maintain it, who to control it and how to control it, etc. Since the
construction and the maintenance of infrastructure have regulations to go by, the infrastructure
can be made beneficial to the whole economy and society.
6. Methodology of Research
Methodologically, more advanced approaches should be adopted. The synthesis of qualitative
and quantitative methods, dynamic rolling analysis (such as SD), model set and other
advanced approaches are all useful tools for supporting the decision making of the
development of regional infrastructure.
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1994.6.
3. Forrester, Jay W. "System Dynamics and Its Use in Urban and Regional Development”, ed. in 2.
4, Jia Fenghe, et al. Theory and Model for Regional Economics. Nankai University Press, 1989.
5. Wang, Qifan. System Dynamics, Tsinghua University Press, 1987.
6. Wang, Qifan. ed. Dynamic Analysis on Socio-economic Complex System, Fudan University Press, 1992.12._
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