The role of infrastructure in improving local economy and rural household income: a study in rural development in Indonesia

Abstract

Infrastructure, such as roads, electricity, and telecommunication, is considered as a prerequisite and enabling condition for boosting the economic development of a nation, including in rural areas. However, infrastructure does not guarantee successful development and it may have positive, negative, and mixed impacts on rural development in different localities and sectors. Numerous studies have documented government and private sector spending and investment in infrastructure, and returns from infrastructure projects, especially pertaining to economic growth and productivity at the macro national level. However, there is still a lack of understanding about the impact of infrastructure implementation and delivery on rural economic activities at the micro level. The potential benefit of infrastructure to rural development needs to be better understood to assist governments to tailor the delivery of infrastructure to effectively boost economic and social development in rural areas. This study attempts to fill the research gap about success factors of public infrastructure with the variety of economic activities in rural areas.The current literature on infrastructure has identified three main contributions infrastructure makes to economic activities: increasing efficiency in production activities; improving equity in access to public facilities; and providing well-maintained infrastructure to promote rural sustainability to support the economy. This research aims to investigate the role of infrastructure at the micro level through both farm and off-farm household economic activities. This is important because more empirical evidence is needed to improve understanding of the effect infrastructure has on the economy, and in particular its effect on micro level rural economic activities. This research illustrates the importance of understanding the adaptation process of rural communities in deriving benefits in their local economic activities from the availability of infrastructure, considered individually or in combinations of infrastructure.A pragmatic paradigm was used in this research with a mixed methods approach, including a survey and focus group discussions (FGDs). It examined the dynamics of rural household economic activities in three sub districts of East Lombok, Indonesia (East Lombok District, West Nusa and Tenggara Province). There were two phases of fieldwork, from November 2016 to February 2017, and from April to August 2017.The results show that decentralisation reform in Indonesia from the reform era in 1998 led to devolution of the core responsibilities of rural development, including the role of providing rural infrastructure. This involved fiscal decentralisation from the centre to the district and village governments for the purpose of delivering better small and medium scale infrastructure in rural areas. The results of quantitative analysis on the effect of rural infrastructure on household income showed a positive and significant effect on variables related to the cost of access to the infrastructure.This study found that households that spent more to use infrastructure (in access charges, monthly charges, or purchasing appliances) gained more benefit than others. For example there are costs related to infrastructure access such as connection fees, electronic devices, and monthly charge that limits the benefit for poor people. The results also showed that infrastructure offered opportunities in both farming and non-farming activities to boost rural household income, such as the growth of idea, innovation, and knowledge benefitted from the utilisation of infrastructure. People make active choices in taking the opportunity from the advantage of infrastructure. The opportunities presented differed somewhat between farming and non-farm enterprises; and poor household and higher income household, for examples having a new of improved road, and telecommunications, gives access to markets, or improved travel to enable a second job. While the benefits of infrastructure offset the cost, there is still more attention to increase the chance for the poor in benefiting from infrastructure to enable their economic activities.This study provides important findings on the impact of a set of infrastructure on the rural economy. The provision of a combination of infrastructure, rather than one particular type, better supports the process of development for rural economic activities. Agricultural activities benefitted from the availability of combined road and irrigation facilities, while the road access improved the delivery of electricity for rural areas. Tourism increased the multi-sector activities with the support from the combination of road, electricity, and telecommunication.This study has identified the significant factors of rural infrastructure availability and their relationship with rural economic activities and household income. The focus of success factors in this study was more specific than in previous studies by exploring the work of a set of infrastructures in supporting the rural economy at the micro level. This study demonstrate that at micro scale, taking advantage of infrastructure is an active household choice, not an automatic process. The opportunities and choices made differ according to sector, and household characteristics, and preferences. Further, whereas most literature focuses on single types of infrastructure, e.g. roads, telecommunications, irrigation, this study shows that the types of infrastructure interact in creating or increasing opportunities.