Economic Role of Transport Infrastructure

Theory and Models

Claudio Ferrari, Anna Bottasso, Maurizio Conti, Alessio Tei

• Publisher: Elsevier
• Year: 2018
• Print ISBN: 9780128130964
• eBook ISBN: 9780128130971
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Economic Role of Transport Infrastructure: Theory and Models helps evaluate the economic effects of transport infrastructure investments within a cost-benefit framework for maximum economic impact. The book analyzes the primary empirical approaches used to gauge the economic effects of transport infrastructures, providing in-depth discussions on data issues, input-output techniques, and econometric methodologies. Users will find empirical evidence organized from a transport mode point-of-view, inspiring researchers to conduct comparative analysis for various infrastructure projects. Topics cover infrastructure's impact on economic growth using theoretical frameworks, including exogenous growth models, endogenous growth models, and new economic geography models.In addition, readers will also learn tips for conducting infrastructure impact studies and how to improve the effectiveness of infrastructural investments design.- Explains and evaluates the economic effects of transport infrastructure investments, including direct and indirect, short and long run impact, and local and spillover outcomes- Provides up-to-date coverage of quantitative techniques and empirical results for transportation and economic impact issues- Explains the steps for conducting impact studies for proposed infrastructure projects- Analyzes infrastructure's role on economic growth through theoretical, methodological and empirical perspectives- Features case studies describing real-world methods

Chapter 1

Introduction

“A system which is efficient in the static sense at every point of time can be inferior to a system which is never efficient in this sense, because the reason for its static inefficiency can be the driver for its long-term performance.”

J. A. Schumpeter.

Writing a book is a risky venture. One has the feeling that there is always something else to read, study, learn, and discuss; that his toolbox is not adequately equipped to complete the task.

Nevertheless, sometimes one is requested to try this adventure. This is what happened to us. After the publication in 2014 of our joint paper titled “Ports and regional development: A spatial analysis on a panel of European regions” on the journal Transportation Research—Part A, we were asked to reflect on the opportunity to write a book on the economic role of transport infrastructure.

We are well aware of the existence of some masterpieces which deal with the economic impact of transport infrastructure; indeed, we have learnt a lot from them as students and we have still been using them in our university graduate and postgraduate courses. Despite this, in the past two decades, economic theory has deeply reconsidered the role played by transport infrastructure in fostering economic activity and growth, and, moreover, the set of economic models and tools that are nowadays available to researchers has been incredibly enriched. Thus, we felt that there were sufficient novelties in the literature to warrant at least an attempt to critically evaluate and systematize the available scientific knowledge on the link between transport infrastructure and economic activity. Readers only are entitled to judge if we have achieved this goal.

This book focuses on the economic role of transport infrastructure, thus combining the disciplines of transport economics with regional economics. This means that some important issues related to the economics of transport infrastructure have not been deliberately considered. In fact, the present volume does not claim to cover all possible issues associated with transport infrastructure investments; indeed, it would be a challenge well beyond our capabilities. In particular, issues related to the financing and regulation of transport infrastructures go well beyond the aims of this book; similarly, the industrial organization issues (e.g., the possible introduction of competition for the market and in the market, or the vertical relationship between airports and airlines, or the de-verticalization process in the railways sector, etc.) or the political economy of transport infrastructures have been largely neglected. Readers interested in these other important issues may easily find several valuable contributions in the literature.

Our main purpose is that of providing our readers with a book that focuses on the economic role that transport infrastructures play, and, in particular, on the most popular techniques of projects' assessment as well as on the several econometric techniques that exist in the literature to investigate the wider economic impacts of transport infrastructure.

This work has been written primarily for postgraduate students interested in applied economics and in particular in transportation and regional studies. Some notions of micro- and macroeconomics are requested as well as a basic knowledge of econometrics. Notwithstanding this caveat, this book may be read by a large public, and in our intentions it could represent a useful tool to inform policy-makers interested in the subject, as well as practitioners and spatial planners. In this sense, this book facilitates “cherry-picking” readers because each chapter is self-consistent and autonomous as much as possible.

This book is divided into three parts. The first part is formed by two chapters that, in some sense, provide the background of this book; indeed, the two chapters deal with the economics of transport infrastructure and with the recent models that provide the theoretical framework to think about the possible “transmission” mechanisms through which transport infrastructures might influence economic activity and growth. In this part, readers are introduced to the infrastructural elements that characterize the transportation system. For every transport mode, the main economic characteristics are presented; in particular, the chapter focuses on the lumpiness of supply and the role of scale economies that make transport infrastructure multiuser plants. These characteristics, coupled with the agglomeration economies associated with the infrastructural endowment, make this sector strategic for governments. Then the chapter focuses on the economic benefits, and how they change, during the life cycle of transport infrastructures. It concludes with some reflections on how transport infrastructures will evolve in the near future in accordance with the concept of “smart transport”. The following Chapter 3 presents the theoretical literature that has analyzed the role of transport infrastructure investments on economic activity. After briefly describing classical exogenous and endogenous growth models, the main contributions of the New Economic Geography (NEG) literature are surveyed. NEG models analyze the interaction between agglomeration and dispersion forces and the role played by changes in transport costs associated with improvements in the transport system. Recent NEG models suggest that reductions of trade/transport costs produce uneven spatial developments that are accompanied by faster growth in all regions.

The second part of this book is dedicated to the appraisal process of infrastructure and their impact on the economic system. It consists of three chapters dedicated to the quality of available data, the techniques that are typically employed in ex-ante impact assessment of infrastructure projects, and the econometric models that are instead generally employed in the academic literature to conduct ex-post impact assessment evaluation of transport infrastructure, respectively. The quality of data is extremely important because it affects the quality of results of the empirical analysis. In most cases, data refer to some quantitative characteristics of transport infrastructure, as the rail or road length, the number of seaports or airports, or the amounts invested in infrastructure works. In turn, the production of qualitative data is still limited and, sometimes, the quality is again expressed in quantitative terms; by way of example, the road network is sometimes split into highways and normal roads or paved and unpaved roads. Chapter 5 is dedicated to the assessment of infrastructure. It presents and discusses the three widely adopted techniques for infrastructure assessment: Cost–Benefit Analysis, multicriteria analysis, and input–output techniques. This part of the book concludes with the presentation (Chapter 6) of the econometric approaches that have been used in the literature to ex-post evaluate the impact of transport infrastructures on growth and other economic outcomes. It starts discussing the role played by economic theory in informing the empirical analysis and then considers the econometric tools that have been used in recent years, such as panel fixed effects, Generalised Method of Moments (GMM), spatial econometrics, Vector Auto Regressions (VAR), and counterfactual impact evaluation methods. Finally, it provides a brief discussion of the level of analysis at which studies have been conducted, from macroeconomic to regional, industry, and firm level.

The last part of this book is devoted to discuss the empirical evidence on the economic effects of transportation infrastructure networks by leveraging on a series of meta-analyses as well as on a selected group of very recent studies that apply state-of-the-art econometric methods. Although much of the literature is focused on the impact of transport infrastructure on production, Chapter 7 also explores the role played by transport networks on other relevant dimensions of economic activity that have received increasing attention in recent years, such as employment and population, productivity, firm dynamics, and trade. The evidence from both the meta-analysis and the “targeted” short literature review drive the discussion on a tentative conclusion on the economic effects of transport infrastructures associated with different modes of transport. This third part of the book concludes with Chapter 8 that is dedicated to the description of the transport planning process, providing examples of some of the main international transport network strategies. Thus, while the previous chapters discuss theoretical studies that investigate the impact of the transport network on economic activity, this chapter focuses on the planning process of some of the main infrastructure initiatives, linking the planning activities to the assessment process. Given the growing role of alternative funding solutions, the chapter presents also a section dedicated to public–private partnerships, discussing their role in the achievement of wider regional benefits.

Final considerations and issues for further research are outlined in the concluding pages (Chapter 9).

We are highly indebted to several colleagues that contributed to this book by inspiring us with their valuable comments, suggestions, and fruitful discussions. The list of names would be so long that we prefer to avoid to explicitly mention them, but their names recur frequently in the list of references. We only mention one of them, Professor Ugo Marchese who introduced the discipline of Transport Economics in the graduate programs of the University of Genova in the 1960s and was among the founders of the Italian Association of Transport Economists.

Lastly, this book is dedicated to our wives, husband, and children (also the boy who was born while we were typing this introduction). We are extremely proud of their continuous support, patience, and encouragement that allowed us to steal them a lot of time, hopefully not in vain, to work on the manuscript. We are extremely grateful for this.

Chapter 2

The Economics of Transport Infrastructure

Abstract

This chapter introduces the infrastructural elements composing the transportation system. For every transport mode the main economic characteristics are presented; in particular we focus on the lumpiness of supply and the role of scale economies that make transport infrastructure multiuser plants. These characteristics coupled with the agglomeration economies deriving from the infrastructural endowment make this sector strategic for governments. Then this chapter focuses on the economic benefit, and how they change, during the life cycle of transport infrastructures. This chapter concludes with some reflections on how transport infrastructure will evolve in the near future in accordance with the concept of smart transport.

Keywords

Economic benefit; Infrastructural endowment; Scale economies; Smart transport; Transport infrastructure; Transport network

Contents

1. 2.1 The Elements of the Transport Networks
   1. 2.1.1 The Infrastructural Endowment
   2. 2.1.2 The Lumpiness of Supply
   3. 2.1.3 The Public Role of Infrastructures and the Role of Public in Infrastructure Planning
2. 2.2 The Cost Structure of Transport Infrastructure
   1. 2.2.1 The Cost of Transport in Relation to Distance
3. 2.3 The Life Cycle of Transport Infrastructure
4. 2.4 Toward Smart Infrastructures

The infrastructure system is a network made of several routes connecting a number of terminals. This system together with the vehicles that circulate on it and the load of vehicles—passengers or cargo—forms the transportation system; i.e., the combination of transport supply and demand (Blauwens, De Baere, & Van de Voorde, 2008). According to Quinet, Touzery, and Triebel (1982), it is useful to distinguish the transport system into two subsystems—infrastructures and services—to analyze the specificities that characterize the two.

Under an economic perspect...

Table of contents

• Cover image
• Title page
• Table of Contents
• Copyright
• Preface
• Chapter 1. Introduction
• Chapter 2. The Economics of Transport Infrastructure
• Chapter 3. Transport Infrastructure and Economic Activity: Theoretical Issues
• Chapter 4. Data Issues
• Chapter 5. Investment Appraisal
• Chapter 6. The Econometrics of Transport Infrastructures
• Chapter 7. The Economic Effects of Transport Infrastructures: A Critical Review of the Empirical Evidence
• Chapter 8. Application and Policies
• Chapter 9. Conclusions
• References
• Index