INVESTMENT IN TRANSPORT INFRASTRUCTURE AND ECONOMIC DEVELOPMENT: RECENT DEBATES
IN THE UNITED STATES
Andrew R GoetzDepartment of Geography and
Intermodal Transportation InstituteUniversity of Denver
Transport Studies Unit Seminar Series
Oxford University
9 March 2011
ECONOMIC CRISIS OF 2008:$700 Billion US Government Bank
Bailout and Economic Fallout
Source: Financial Forecast Center 2009
DEBATE OVER ECONOMIC STIMULUS PACKAGE
US TRANSPORTATION INFRASTRUCTURE CRISIS
INTERNATIONAL TRADE
Growth in Trade as a Percentage of US GDP
Source: AASHTO (2007) Transportation: Invest in Our Future
HIGHWAYIMPACTS
Source: Bingham 2006
INTERSTATE BOTTLENECKS
Source: AASHTO (2007) Transportation: Invest in Our Future
Traffic Congestion
Source: AASHTO (2009) Transportation: Are We There Yet? The Bottom-Line Report: 2009, p. 21.
Minneapolis I-35W Bridge CollapseAugust 1, 2007
BRIDGE CONDITIONS
Source: AASHTO (2009) Transportation: Are We There Yet? The Bottom-Line Report: 2009, pp. 22-23.
“The Commission believes that to
meet 21st Century transportation needs, it is necessary for Congress to
establish a new Federal Compact with the American people.”
“ The Commission believes that it is critical to America’s future to:
Create and sustain the preeminent
surface transportation system in the
world.”
Opposing Perspectives
Public Spending in Japan
1990-2000: Japan’s “Lost Decade”
1991-2008: $6.3 trillion spent on construction-related public investment to stimulate economy
Controversy over economic impacts
Hamada Marine Bridge, Japan
•Connects Hamada to small, sparsely-populated island
•Cost: $70 million
Source: Fackler (2009) Tokyo’s wasted trillions buy a costly lesson. International Herald Tribune, February 6, 2009
Proposed Gravina Island Bridge: Alaska’s “Bridge to Nowhere”
• Part of SAFETEA-LU 2005 federal transportation act
• Would have linked city of Ketchikan to the island where its airport is located (now connected by ferry)
• Cost: $398 million
• Symbol of uncontrolled “pork-barrel” politics
Economic Impacts of Transport Infrastructure Investment
1. Conceptual and Theoretical Background
2. Review of Empirical Literature
a. Summary of pre-2000 period
b. Analysis of post-2000 studies
3. Recent Debates in the United States
a. American Recovery and Reinvestment Act of 2009
b. New Jersey Tunnel Project
c. Federal High-Speed Rail Program
4. Conclusions and Areas for Future Research
CONCEPTUAL AND THEORETICAL BACKGROUND
based in part on
Rietveld & Bruinsma 1998Banister & Berechman 2000Mikelbank & Jackson 2000
Bhatta & Drennan 2003Vickerman 2007
Lakshmanan 2010
Commonly-Used Measures
Transport Infrastructure
•Physical extent (eg highway miles)
•Monetary investment
Accessibility
•Travel time/cost
•Various nodal measures
Economic Impacts
Direct and Indirect
•Output (eg, GDP)
•Productivity (output per unit of input)
•Costs of production
•Employment, income, wages, property values
SCALE: International, National, Regional, Metropolitan, City, Neighborhood
TIME FRAME
Cohesion
Theoretical FoundationsClusters of Literature
TRADITIONAL ECONOMIC AND ECONOMIC GEOGRAPHY
PERSPECTIVES
1. Microeconomic Analysis
Benefits to individual firms/households
• Cost/benefit analysis
Number of Trips
Cost/TripD
D
S0
S1
T0 T1
2. Macroeconomic analysis
Increase efficiency and reduce costs of production inputs
• Production function approach
• Public capital investment can lead to increases in private capital (crowding-in) or decreases (crowding-out)
3. Transport and International/Interregional Trade
and Spatial Interaction
Classical trade theory
Ullman (1956) 3 Bases of Spatial Interaction
• Complementarity
• Transferability
• Intervening opportunities
Taaffe & Gauthier 1973
Krugman 1991
Isolation
Region A Region B
Transport Link and Interregional Trade
4. Transport and Industrial Location: Agglomeration, Spillovers, Core/Periphery
Classical industrial location theory (Weber 1909; Isard 1948; Smith 1981)
Firm Behavior (Markusen 1986; Chapman & Walker 1992)
New Economic Geography (Krugman 1991; Fujita, Krugman, and Venables 1999)
New role of transport in economic growth
• Freight logistics (Hesse & Rodrigue 2004; Bowen 2006; Leinbach & Capineri 2007)
• Passenger mobilities (Sheller & Urry 2006; Cresswell 2006; Dodge & Kitchin 2004)
Typical sequence of transport network development (Taaffe, Morrill, and
Gould 1963)
5. Historical Models and Spatial Economic Theory
New frontier and bypass effects
• Taaffe, Morrill, & Gould 1963; Vance 1964; Cronon 1991
Growth poles, spread and backwash
• Hirschman 1958
“Bypass Phobia”
“Why is Denver, one of this planet’s smaller major cities, building one of the world’s largest airports? . . . Denver suffers from “by-pass phobia.” As one of the world’s most isolated major cities, the Mile High City has always been afraid the world would pass by without noticing the little city in the middle of nowhere” (Noel 1994).
“Radiator Springs” syndrome
6. Transport and Urban Land Use/Values
Classical Urban Land Use Theory
• Based on Von Thunen, Alonso
Conditional Degree and Direction of Causality
Transportation is one of several factors that are important to economic development (Banister & Berechman 2000, 2003; Giuliano 2004)
• If X, then Y vs. If A, B, C, . . . and X, then Y1. Transportation is a necessary but not sufficient
condition2.Transportation is neither a
necessary nor sufficient condition
Diminishing returnsLeading or lagging indicatorImportance of context
Airports and Urban Growth
“Despite the documented relation between airports and urban growth, airports are not a panacea for lagging economic development”
• Field of Dreams--If you build it, will they come?
ALTERNATIVE THEORETICAL PERSPECTIVES
Limited Government/Free Market Perspective
Most public spending is wasteful, in both theory and practice (CATO Institute, Reason Foundation, Heritage Foundation)
Private sector is more efficient
Transportation—Privatization, tolling, congestion pricing
Better Allocation of Public Investment
Sectors other than transportation will yield a greater economic development return
• Other physical infrastructure—water, electric power, communication systems, internet connectivity
• Social infrastructure—educational systems, job training
The Role of Transport in Sustainable Development
Is more transport investment always better?
• Environmental and social externalities
• Unlimited mobility is neither possible, nor desirable
• Decoupling transport growth and economic growth (Stead & Banister 2006)
Some transport modes are more sustainable and are more beneficial for long-term economic development
Transport Investment and Sustainability
• Disconnect between economic impact literature and sustainability literature
• Role of sustainable transport in long-term economic development
• Challenges of incorporating social and environmental factors in economically-driven cost/benefit analyses
Social
Environmental Economic
Sustainability Triangle
Review of Empirical Literature
Summary of Pre-2000 Period
Analysis of More Recent Studies
Early studies
US Interstate Highway system (eg, Garrison et al 1959)
Appalachian highways (eg, Gauthier 1973)
Macroeconomic studies
Japan, 1954-1963 (Mera 1973)
Aschauer (1989, 1990); Munnell (1990)
• Found very high public capital output elasticities (0.31-0.39) for US, 1949-1985
• Prompted critiques and many other studies during the 1990s
Summary of 40 Studies, 1989-1999(Bhatta and Drennan 2003)
15 studies calculated output elasticities• Results: range from +0.04 to +0.399 studies calculated changes in costs of production• Results: range from -0.05 to -0.2114 studies analyzed changes in employment, income,
wages, or property values• 9 found significant positive relation between public
transport capital and economic benefit• 3 found no significant relation• 2 found negative relation2 studies calculated rate of return on public capital• Nadiri & Mamuneas (1994) results: range from 4.9 to
7.2% compared to 8.65% for private capital
Summary of 40 Studies, 1989-1999(Bhatta and Drennan 2003)
Hypothesis: Public sector investments in transportation infrastructure result in long-term economic benefits on the production, or supply side, such as increased output, increased productivity, reduced costs of production, or increased income.
Conclusion: A preponderence of the studies reviewed could not reject the hypothesis.
Empirical Studies1999-2009
Search using ISI Web of Science56 studies analyzed• 43--positive results• 13--no impact or negative resultsKey Findings• Wide variation, though numerical results are generally
more modest than earlier results• Middle-income developing countries (eg, China, India)
tend to exhibit greater impact change than developed• Increasing number of historical studies (longer-term,
larger scale) that tend to exhibit strong positive results• Importance of geographic and historic context
Summary of Negative Arguments
1. Public investment is inherently wasteful; investment should be private
2. Public investment could be more productive if government was more efficient (e.g., ineffective policies, byzantine funding structures, bloated costs, corruption)
3. Other needs (education, health care, social services) are more important
4. Negative spillovers on adjacent regions (zero-sum)
5. Transportation investment (especially highways) has negative impact on environment (energy consumption, sprawl, open space and habitat encroachment)
Recent Debates in the United States: The Politics of Transport Investment
1. American Recovery and Reinvestment Act of 2009
2. New Jersey Tunnel Project
3. Federal High-Speed Rail Program
1. American Recovery and Reinvestment Act of 2009 (ARRA)
ARRA Highlights
• Signed into law on February 17, 2009• $787 billion total investment• $48.1 billion for transportation, including:
– $27.5 billion for highways
– $8.4 billion for transit
– $8.0 billion for high speed rail
– $1.3 billion for Amtrak
– $1.5 billion for National Surface Transportation Discretionary Grants
• Significant accountability, transparency and reporting requirements
SAFETEA-LU (2005) authorized $286 billion for surface transportation over 4 years
Source: US Congressional Budget Office (2010). Estimated Impact of the American Recovery and Reinvestment Act on Employment
and Economic Output from June 2010 through September 2010.
2. New Jersey Tunnel Project
New Jersey Governor Christie stops trans-Hudson River ARC tunnel project
• $8.7 billion
• Would double passenger rail capacity between NJ and NY
• Specter of Boston “Big Dig” cost overruns—NJ “on the hook”
3. Federal High-Speed Rail Program
3 State Governors Reject High-Speed Rail Funds
Gov. Scott Walker, Wisconsin
Gov. John Kasich, Ohio
Gov. Rick Scott, Florida
West Virginia Governor (now Senator) Joe Manchin takes “Dead
Aim” at Cap-and-Trade Bill
http://www.youtube.com/watch?v=xIJORBRpOPM&feature=related
CONCLUSIONS
SUMMARY/CONCLUSIONS
1. Theoretical and empirical support for positive economic benefits from transport infrastructure investment, subject to important limitations
2. Minority of studies have not found economic benefits
3. Infrastructure alone will not guarantee economic success, but positive stories are more common than negative ones
4. Empirical studies underscore importance of geographical and historical context
5. ARRA transport funds relatively small; marginal economic impacts; larger policy impact on next transport reauthorization?
Areas for Future Research
Proper role and type of transport in fostering economic development
• Better methods in project analysis—more emphasis on selectivity and efficiency
• Differentiating economic impacts between modes (Smart Growth America 2010)
Continuing comparisons between projected and actual results
Importance of geographic and historic context—case studies
Thank you