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Recent years have witnessed increasing interest in the relationship between economic development and poverty. An important reason for this has been the establishment of the Millennium Development Goals, which have set poverty reduction as a fundamental objective of development. The main factor explaining the salience of poverty reduction as a development goal is, in part, ethical. It is indeed widely considered ethically unacceptable that a large part of the world population still does not have the resources to achieve a basic level of living standards in an otherwise increasingly affluent world.

While a high rate of economic growth does not necessarily reduce inequality or poverty, there seems to be a consensus among researchers and policy makers that continuous, rapid economic growth is required for poverty alleviation. Governments around the world are continually looking for new strategies to increase the ability of their economies to produce goods and services. In this light, over the last two decades, economists have developed more sophisticated models to evaluate the potential economic impacts of different supply-side policies that aim to raise the productive capacity of the economy. Specifically, alongside modelling the main factors of production – physical capital and labour – these models seek to account for the concurrent use of non-traditional inputs, such as public infrastructure and education, as key contributing factors to economic growth.

The government of the Philippines continues to implement reforms that aim to promote economic development and lift the country’s standard of living. This is critical as it has been lagging behind neighbouring East Asian countries with respect to economic size and per capita income. The bottlenecks the country faces include poor physical infrastructure (transport and utility infrastructures), low quality of education, volatile economic growth, high poverty rates and large income disparities.

China has recently been spending more than 10 % of total annual government expenditures on public infrastructure. In late 2008, when the global financial crisis occurred, a four trillion yuan package was put into action to stimulate domestic economic growth. Public infrastructure investment in 2009 and 2010 was respectively 60 % and 80 % higher than in 2008. China has managed to sustain rapid economic growth in recent years. However, disparities between rich and poor have risen, and China has become one of the most unequal countries in the world. Despite high overall economic growth rates, the Chinese government is becoming increasingly concerned about high and rising income inequality. Reducing poverty and inequality through inclusive growth has become a major mandate of development policy. President Hu Jintao formally endorsed inclusive growth as a national development strategy at the Asia-Pacific Economic Cooperation (APEC) in November, 2009.

The role of infrastructure in economic growth and welfare has been studied extensively across the literature over the past three decades. Post World War II reconstruction presented a model where governments invested in economies in order to create an enabling environment for the private sector. This led to infrastructure being viewed as something along the lines of a public good, and in many countries its provision became the sole responsibility of the state.

The structural adjustment policies that were followed during the 1980s and 1990s have produced mixed outcomes, particularly in terms of poverty and inequality reductions. This has spurred, over the years, the international community to ask whether different combinations of public policies could have better development impacts. In particular, it is now often argued that infrastructure development can serve not only as an important source of fiscal stimulus in the short run, but also as a tool for encouraging growth in the longer run and an avenue for generating broad-based economic development. Such broad-based development is especially important since inclusiveness of growth features as an overriding objective of the current development paradigm.