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Salinas-León: Infrastructure and Growth

February 1, 2013 by Matthew Denhart
How does infrastructure relate to economic growth? This topic was addressed by Mexican scholar Roberto Salinas-León in his speech Saturday afternoon to the students of the Dallas Urban Debate Alliance. Salinas-León highlighted that Mexico is the second largest trading partner with the U.S. and explained that this economic relationship is very important to both countries. Indeed, trade makes the lives of citizens of both countries more prosperous. Economic theory explains why this is the case. Trade involves at least two individuals, and when transacting in a free market, a trade will only ever occur when both trading parties believe transacting will make them better off. After all, why would anyone ever trade if doing so put them at a disadvantage? For this reason, by its very nature, trade makes people better off. The same is true for countries: When Mexico and the U.S. transact, both countries benefit. Of course infrastructure is crucial to facilitating trade between countries because traded goods must be transported. To illuminate how trade and infrastructure are linked, Salinas-León asked the students how people in Alaska can enjoy guacamole even though the Alaskan climate is not suitable for growing avocados. The answer is trade: Avocados are grown in Mexico and sold to people in Alaska. But for this transaction to work, reliable transportation systems are essential. This weekend the debate students are addressing the question of whether the U.S. federal government should substantially increase its investment in infrastructure. Clearly infrastructure is important to economic growth, but Salinas-Leon’s presentation suggested that federal government spending might not be the best way to build infrastructure. Rather, leveraging the free market might be a more efficient. This is so because the market system directs resources to infrastructure projects that people actually demand. Private investors will only invest in an infrastructure project if they think there is a reasonable chance that their investment in the project will prove profitable. To realize a profit, the infrastructure system must actually be used. In this way, the market system ensures that resources are allocated to infrastructure projects that will be valued by people. Salinas-León continued by saying that the most important concept in economics is that of “opportunity cost.” This concept tells us that since we live in a world of scarce resources, when resources are used for one project, they become unavailable for other uses. This relates to the students’ topic because another advantage of allowing private markets to build infrastructure is that when private money is used, the government has more resources available to use in other ways. Economic growth relies heavily on international trade, which in turn relies on reliable infrastructure systems. To achieve 4% annual economic growth, we must focus on doing things in the most efficient manner possible. As Salinas-León explained, free markets do this better than any other force known to man. That is a lesson that Dallas debate students and the American public alike ought to take to heart.

Author

Matthew Denhart
Matthew Denhart

Matthew Denhart is an expert on immigration policy and is the author of the Bush Institute’s America's Advantage: A Handbook of Vital Immigration and Economic Growth Statistics, now in its third edition. He currently serves as executive director of the Calvin Coolidge Presidential Foundation and is a founder of the Coolidge Scholars Program which provides full-ride merit scholarships to America's most promising college students. A summa cum laude graduate of Ohio University, Denhart has written and spoken widely on a variety of policy topics including the economics of higher education, labor, and taxes. He has contributed articles to numerous national publications including The Wall Street Journal, Forbes.com, CNN Opinion, and Bloomberg View. 

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