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Economic Effects

Transportation projects can have various impacts on a a community’s economic development objectives, such as productivity, employment, business activity, property values, investment and tax revenues (in this case "community" can range in scale from individual households to cities, regions, nations or even the entire world). 

In general, transport projects that improve overall accessibility (i.e., they improve businesses ability to provide goods and services, and people's ability to access education, employment and services) and reduce transportation costs (including travel time, vehicle operating costs, road and parking facility costs, accident and pollution damages) tend to increase economic productivity and development. Care is needed to avoid double counting impacts that are already counted in travel time and vehicle cost savings, emission or safety benefits. Many economic impacts are economic transfers (one person, group or area benefits at another's expense) while others are true resource changes (overall economic productivity increases or declines). In many situations, the distribution of impacts is important; for example, from the perspective of the people who gain from an economic transfer, it is a true benefit, but not from society's overall perspective.

It is important to consider the full range of economic impacts, both positive and negative, that a transport project may cause. For example, an urban highway expansion may improve motorists' access and reduce their costs per vehicle-mile, but by creating a barrier to pedestrian travel and stimulating more dispersed land use development patterns, reduces access by other modes, and increases the total amount of travel required to reach destinations. Similarly, improving access to a particular area can expose businesses to more competition (for example, if previously captive local customers can more easily access regional shopping centers), reducing business activity there.

Examples

  • A new highway or public transport service increases a community's access to other areas. This increases businesses' labor pool, reduces their costs to obtain input materials and services, and expands their potential market. This may increase "economies of scale" in production processes, which means higher productivity through lower costs per unit of output. 
  • Improved accessibility may increase workers' ability to access education and employment opportunities (increasing their productivity and incomes), and increase residents' access to more shopping opportunities (providing financial savings), and increase access to recreation and cultural opportunities (increasing their welfare).
  • Mobility management strategies, such as more efficient road pricing, can improve travel time reliability, which reduces logistics and scheduling costs beyond just the travel time savings.
  • New transportation links between cities and ports, and new types of inter-modal facilities and services at those locations, make it possible for new patterns of international trade to develop. In some cases, the new links may improve the efficiency of business customer/client visits as well as product deliveries. 

Relationship to Other Benefits and Costs

In all of the above examples, the benefits flow to parties that depend on transportation facilities and services for their activities. In some cases, the ultimate beneficiary is the business operation that can achieve operating cost savings or greater productivity (output per unit of cost). In the case of cargo deliveries, the beneficiaries may be senders and receivers rather than the transportation company that actually does the traveling.

It is also possible to account for many business operations and scheduling benefits, as well as logistics benefits and production economies of scale, as additions to the valuation of travel time benefits for truck trips. Alternatively, they can be addressed separately as additional economic benefits.

Finally, it is important to note that there are many broader forms of economic impacts on communities, regions and states — in which transportation facilities lead to business expansion, additional job creation and additional tax revenues. Those economic impacts reflect a combination of the productivity benefits discussed here and broader business attraction impacts that also affect local economies. This is discussed further in the separate section on economic impact analysis.

Resources

ASTRA (Assessment of Transport Strategies) (www.iww.uni-karlsruhe.de/astra/summary.html), is a set of integrated transportation and land use models that predict the long-term economic and environmental impacts of different transportation and land use policies in Europe. The Final Report, is available at www.iww.uni-karlsruhe.de/astra/ASTRA_Final_Report.pdf

Cambridge Systematics (1998), Economic Impact Analysis of Transit Investments: Guidebook for Practioners, Report 35, TCRP, Transportation Research Board (www.trb.org).

EDRG (2001), Guide for Using Empirical Information to Measure Economic Impact of Highway Investments, Federal Highway Administration, Economic Development Research Group (www.edrgroup.com).

EIO-LCA Model (www.eiolca.net) is a computer model that quantifies the economic and environmental impacts of producing goods or services, including productivity, energy consumption and pollution emissions.

David Forkenbrock, Sondip K. Mathur and Lisa A. Schweitzer (2001), Transportation Investment Policy and Urban Land Use Patterns University of Iowa Public Policy Center (www.uiowa.edu).

David J. Forkenbrock and Glen E. Weisbrod (2001), Guidebook for Assessing the Social and Economic Effects of Transportation Projects, NCHRP Report 456, Transportation Research Board, National Academy Press (www.trb.org).

Daniel J. Graham (2007), Agglomeration Economies and Transport Investment, Discussion Paper No. 2007-11, Joint Transport Research Centre, OECD and International Transport Forum, at http://puck.sourceoecd.org/vl=9745622/cl=32/nw=1/rpsv/cgi-bin/wppdf?file=5kzbxsv5nnjk.pdf.

Piyapong Jiwattanakulpaisarn, Robert B. Noland, Daniel J. Graham and John W. Polak (2009), “Highway Infrastructure And State-Level Employment: A Causal Spatial Analysis,” Papers in Regional Science, Volume 88 Number 1, pp. 133 – 159; at http://ideas.repec.org/a/eee/transa/v44y2010i4p265-280.html.

Duncan Kernohan and Lars Rognlien (2011), Wider Economic Impacts of Transport Investments in New Zealand, New Zealand Transport Agency (www.nzta.govt.nz); at www.nzta.govt.nz/resources/research/reports/448/docs/448.pdf.

Andreas Kopp (2007), “Aggregate Productivity Effects Of Road Investment: A Reassessment For Western Europe,” in Transport Infrastructure Investment and Economic Productivity, ECMT Round Tables, OECD, European Conference of Ministers of Transport (www.oecdbookshop.org); at www.forfas.ie/media/productivity_chapter17.pdf.

Todd Litman (2005), Evaluating Public Transit Benefits and Costs, VTPI (www.vtpi.org); at www.vtpi.org/tranben.pdf.

Todd Litman (2010), Evaluating Transportation Economic Development Impacts, VTPI (www.vtpi.org); at www.vtpi.org/econ_dev.pdf.

David Luskin (1999), Facts and Furphies in Benefit-Cost Analysis: Transport, Bureau of Transport Economics (www.bitre.gov.au); at www.bitre.gov.au/publications/24/Files/r100.pdf.

M.I. Nadri and T.P. Mamuneas (1996), Contribution of Highway Capital to Industry and National Productivity Growth, Federal Highway Administration (www.fhwa.dot.gov); at www.fhwa.dot.gov/policy/nadiri2.htm.

REMI (2005), TranSight, Regional Economic Models (www.remi.com). This input/output model evaluates the effects of transportation improvements and activities on employment, industrial output, wages and income, population and gross regional product.

SACTRA (1999), A Framework for Assessing Studies of the Impact of Transport Infrastructure Projects on Economic Activity, Standing Advisory Committee on Trunk Road Assessment, Dept. of Environment, Transport and Regions (www.roads.detr.gov.uk); available at www.dft.gov.uk/stellent/groups/dft_transstrat/documents/page/dft_transstrat_504940.pdf.

Howard J. Shatz, Karin E. Kitchens, Sandra Rosenbloom and Martin Wachs (2011), Highway Infrastructure and the Economy: Implications for Federal Policy, RAND Corporation (www.rand.org); at www.rand.org/pubs/monographs/MG1049.html.

Glen Weisbrod (2007), Models to Predict the Economic Development Impact of Transportation Projects: Historical Experience and New Applications, Annals of Regional Science, December 2007; at www.edrgroup.com/edr1/bm%7Edoc/models-to-predict-the-eco.pdf.