| This is a theoretical and empirical study relating infrastructure quality and its development to several socio-economic parameters such as the poverty ratio, relative deprivation, external funding and expenditure on infrastructure. Is the poor quality of infrastructure in developing countries an outcome of the scarcity of financial resources, of rent-seeking or of some other variables? How do the above socio-economic parameters affect it? What role do democratic institutions play in the relationship between infrastructure, poverty and stagnation?;A political economy model is constructed to help provide answers to these questions. In a developing country with a democratic setting we find that poverty, rent-seeking, information asymmetry and relative income deprivation contribute substantially to such understanding. India with a sufficiently mature and functioning democracy offers a good case for research.;We carry out an empirical application of the model making use of inter-state data from India. We find that socio-economic parameters, especially the poverty ratio and relative income levels have highly significant effects on the development of infrastructure. Democratic institutions play a very important role in restricting the rent-extraction opportunities. Given the institutional constraints on budgetary allocation, politicians do a good job using incomplete projects as a means of providing employment for the poor. We also find that the timing of elections has no significant impact on the amount so spent. But this is shown to come at a high cost in terms of long term economic growth. Hence, the empirical findings provide strong support for the model. |
