Economic Corridor: Advantages and Disadvantages

Economic Corridor: Advantages and Disadvantages

The Asian Development Bank coined the term “economic corridor” in 1998 to describe critical networks or connections between economic agents placed along a defined geographic area. These connections link the supply side and demand side of various markets and different economic hubs. A particular economic corridor can exist within a country or be built between countries through an international agreement. Existing economic corridors in Asia and Africa have been instrumental in fostering local and international trade. However, despite their obvious benefits, there are also drawbacks and pushbacks.

Advantages of Economic Corridor: Applications and Benefits

1. Regional Integration Through Efficient Transportation Network

Most economic corridors are built with transportation networks as their foundations. A specific example is the ongoing and expanding China-Pakistan Economic Corridor. It is specifically a sea-and-land-based infrastructure network spanning about 3000 kilometers in length that aims to promote the importation and exportation activities of China and Pakistan. This network not only fosters trade between the countries but also provides an efficient alternative trading route involving other countries in South Asia and the Middle East.

Organizations and associations such as the European Union, the Asian Development Bank, and the African Union have financed the development of transportation infrastructure for connecting various countries. An efficient network of transportation infrastructure is central to regional integration. It allows different economic hubs or specific areas with industrial and commercial activities to focus on their respective competitive advantages and unique comparative advantages while also enabling them to do business with one another.

2. Economic Development Emerging From Induced Network Effects

A network effect is a concept in economics that describes a phenomenon in which the value a user derives from a particular good or service increases as the number of its users increases. Nevertheless, in factoring economic corridors, the network effect asserts that the value of transportation infrastructure or connected economic hubs increases with the arrival and emergence of more economic agents. Further, as the value increases, it attracts more economic agents, thereby leading to a sustained boost in economic activities.

Economic corridors are designed to attract economic agents. This also means that they can naturally induce network effects. A well-placed link attracts investments and the establishment of businesses due to ease of transportation and easier communication. This further results in the emergence of vibrant economic hubs or industrial and sectorial clusters along the link as more businesses emerge. The localized economies within the clusters can develop further through increased business and overall economic activities.

Take note that businesses operating along or near an economic corridor can readily implement internationalization strategies. Hence, through a well-placed link that connects an economic hub of a country to another economic hub of another country, another advantage of an economic corridor is that it can maximize the benefits of international trade and economic globalization. The same economic hubs can also become suitable areas for the emergence and development of local industries and sectors such as tourism and education.

3. Social Benefits From Regional Integration and Economic Development

The other advantages of an economic corridor are represented through its various possible social benefits. For example, because it fosters regional integration or connects various regions within a country or between countries, people living along or near a well-placed link can have improved access to healthcare and education. A specific efficient transportation infrastructure makes it easier for these people to access important services in neighboring regions. The economic hubs also attract localized providers of these services.

Economic development also translates to higher employment rates, better wages or salaries, and an increase in disposable income. Rural areas are connected to urban centers. People in these rural areas can also have better access to employment opportunities and important social services. Various critical infrastructures also emerge or are improved along an economic corridor. Cultural exchange becomes more seamless due to regional integration and heightened regional interactions. These can translate further to improved living standards.

Disadvantages of Economic Corridor: Drawbacks and Criticisms

1. Substantial Capital Requirement and Possible Crowding Out Effect

The cost of the China-Pakistan Corridor is estimated to be around USD 62 billion. The proposed India-Middle East-Europe Economic Corridor could cost more than USD 20 billion. The ongoing Trans-European Transport Network which includes a network of roads, railways and terminals, inland waterways, maritime ports and routes, and airports, that covers the entire EU has an estimated cost of around USD 500 billion. Hence, based on these figures, capital requirement is one of the biggest disadvantages of economic corridors.

Some critics have also noted that massive infrastructure undertakings that focus on specified regional areas can induce a crowding out effect. This effect is a phenomenon in economics in which the increased involvement of a government in a sector in a market economy affects the remainder of the market. Remember that economic corridors are expensive. This means that financing them can risk crowding out public investment in critical areas, such as education, water and sanitation, health, telecommunication, and social services.

2. Environmental Externalities From Widescale Resource Utilization

Another possible disadvantage of an economic corridor is its supposed negative impact on the environment. Massive transportation infrastructure projects require substantial amounts of natural resources. The placement of these infrastructures and other relevant critical infrastructures can impact wildlife habitats or local ecosystems. The increased economic activities along the line can also bring forth problems emerging from linear economic management and unscrupulous consumption and disposal.

The aforementioned can also demonstrate the negative environmental impacts of globalization in situations that involve the regional and economic integration of various countries. Those that participate in the establishment of a particular transportation network and economic linkages would have to reach compromises. Some of these compromises can include foregoing local environmental conservation laws to prioritize economic gains. It can also exert pressure on the local environment of a particular hub due to economic overspecialization.

Several critics of the China-Pakistan Economic Corridor have noted that the undertaking could affect various ecologically sensitive areas such as the Karakoram mountain range, the Thar desert, the Indus River delta, and the Arabian Sea coast. The North-South Transport Corridor that would connect various countries in Central Asia, the Middle East, and Europe has also been criticized because it would go through vulnerable areas that include the Caspian Sea basin, the Aral Sea basin, the Zagros mountains, and the Persian Gulf.

3. Cultural Clashes and Other Possible Sociocultural Externalities

The increased regional integration can foster cultural exchanges. However, considering that cultures tend to fight for dominance, these exchanges can also result in cultural clashes. The same integration can also lead to the acculturation of local communities which can lead to the loss of traditional cultural practices and values. The increased movement of people can foster the commercialization of cultures and result in the loss of cultural authenticity. This happens when local cultures are packaged and sold to foreign tourists or visitors.

Another disadvantage of economic corridors is that the emergence and expansion of economic hubs or industrial and sectorial clusters can lead to gentrification and displacement. This involves local residents being forced out of their homes and communities due to rising property prices, increasing cost of living, and development of infrastructure and establishments. The improved movement of people and increased migration can also bring forth social problems such as increased crime rates, instances of human trafficking, and the spread of diseases.