Transport Infrastructure and
Regional Development
Budapest University of Technology and Economics, 2017
Content
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The Debate – Coherences between transport
investements and regional development
Evaluating transportation alternatives
Transport investment and economic growth
The Debate
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There is a fundamental link between growth in
transport investment and economic growth
It has been argued over the last 50 years that there
is a clear relationship over time between GDP
growth and a range of measures of transport and
transport-related investments
During this period also: Increase in trade within
and between countries, demand for travel
Many other measures of wealth or well-being
have also increased in a similar way: the growth in
income levels, the purchase of consumer goods,
the numbers of people in schools, life
expectancy, etc.
Transport investment and economic growth
The Debate
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However, as efficiency and productivity increase, the
linear links with GDP may be reduced as there is no a
priori reason why transport demand should rise with
GDP
Production and distribution processes (and individual
passenger travel) could become either less transport
intensive or more transport intensive.
Conversely, if prices rise substantially or there is a
concerted international action, then again the simple
linear relationship may be broken
This has already happened with energy
consumption. Price rise and greater
efficiency in production and
consumption have resulted in growth
levels far less than those in GDP
Transport investment and economic growth
The Debate
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These trends and relationships are important, but they can
change
Sustainable growth and development: Maintaining
growth in the national and international economies, with
the use of less resources, particularly non-renewable
resources -> WE WOULD EXPECT A CONTINUED
GROWTH IN GDP BUT WITH FEWER
RESOURCES USED IN TRANSPORT
It does not mean that there will be less transport, but that
we have to become more efficient in our use of resources
In addition: the current technological revolution in
information technology and communications (ITC) may
also weaken the links between transport growth and
economic growth
Transport investment and economic growth
The Debate
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Apart from national arguments, there are arguments for
investment in transport infrastructure at urban and
regional level (regional development policies in the EU)
EU: Expanded transport infrastructure will provide overall
economic development in the longer term
There are unresolved questions: It is not clear whether
such a policy actually provides the greatest benefit to the
peripheral regions
Little empirical evidence is available on whether
infrastructure investment in the periphery actually
strengthens the centre, as it extends market area and
permits migration of labour to the centre where
opportunities are perceived to be greater
It is unclear whether the local economy in the peripheral
region benefits over the long term
Transport investment and economic growth
The Debate
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If competitiveness of the EU or the individual
country in world markets is discussed, then
infrastructure investment should be in those
locations where the greatest return is expected
This is likely to be in the regions with the stronger
economic conditions, or where particular
circumstances are likely to result in high returns
(particular skills or natural resources)
Is high quality transport infrastructure a
necessary condition to bring economic growth
in emerging or depressed regions?
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Experience, arguments and reviews have all
suggested that road building is not the key
determinant for growth
„Greenfield” road construction as creating basic
network is initial term for stimulating „greenfield”
economic investments – see case of emerging
regions (early stage development)
The previous statement is not true for describing
link between „brownfield” road development and
economic growth
- see example of a depressed region ->
Is high quality transport infrastructure a
necessary condition to bring economic growth
in emerging or depressed regions?
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The example of Liverpool, UK
Regeneration of local economy and restructuring,
retraining, new industries were needed rather than
new roads
Roads were originally justified on the basis of the
expected growth in traffic and the necessity to
accommodate and direct this growth. Later, the
same roads were being defended as a means to
regenerate the local economy
The debate: a historical perspective
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The debate is not new
Ever since roads and railways were built, one of
the main arguments has been the impact that the
infrastructure would have on production costs
Initially: few links in the network - the impacts
could be clearly identified
Transport investment would help open up new
areas for agricultural production, create new
markets for goods and link in isolated areas with
the main towns and cities
This development argument has been applied
more recently to countries passing through the
development stage
History of spatial modeling for
economy
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The early days - 1800-1970: location theory
The 1970s and 1980s: urban and regional
modeling
Early 1990s: macroeconomic approaches
Late 1990s: general equilibrium (GE) models and
spatial models
From 2000s: new economic geography (NEG)
approaches
The early days 1800-1970:
Location theory
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Early studies by economists opened up a debate as to whether a
reduction in transport costs brought new areas and products into the
market
UK: Rostow in 1960 argued that this was the case. Transport
investment contributes to a major new export sector and was
instrumental in the development of the modern coal, iron and
engineering industries.
Mitchell (1964) concluded that these necessary conditions were
already met in the UK before the railways were built. In the UK the
railways had been completed since 1852 and did not have a great
immediate effect on the economy
Substantial direct effects in the construction phase
The Dutch canal network
The impact of railroad development on the American economy
Studies with limitations but formed the basis of much current thinking
The 1970s and 1980s: urban and
regional modelling
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Development of more sophisticated models for land use
and transport analysis (uran and regional scales)
Addition of more complex social structures for households,
information on land availability and housing stock and
more complex transport costs (e.g generalised costs of
travel)
Urban models: housing and jobs allocation within urban
regions on the basis of their relative accessibility, land
availability, income levels, population and employment
Modelling the existing structure and predicting changes in
locations given investment options (roads), new
developments (housing) or changes in travel costs (pricing)
The 1990s: macroeconomic
approaches
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Examining the implications of not investing in the
infrastructure
Land development effects of roads: Under what
conditions measurable effects can be identified?
PPPs?
Environmental arguments
Competitiveness and lack of investment in
infrastructure (e.g distribution)
New traffic generated by new road construction
(induced traffic)
Late 1990s: general equilibrium
(GE) models and spatial models
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GE models microeconomic agents’ behaviours
(households, firms, …)
 Each agent makes decisions by explicit
maximisation of its own criterion (utility, profit, …)
 We can compute the equilibrium and distribution of
demand and supply on network level
Spatial models deal with contribution of transport to
economic development, forecasting maily:
 Demographic development
 Migration of population
 Residential location
 Transport flows
From 2000s: new economic
geography (NEG) approaches
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Backyard-capitalism-> local markets and trade
between regions is essential part of economic
system
Consumers require nearby market, but morseling
the distribution system leads to narrowing range of
locally available products (optimum search
between transport costs and consumer utilities)
There is an equilibrium between location of firms,
employees and markets – in terms of rental fees
and transport costs
Transport development needs are derived from
above results
The Debate: Productivity of
Infrastructure
Public capital has an impact on economic
growth, on private capital and on labour
productivity, but the magnitude and
significance of these effects are not clear
 Key issue: The linkages of the above
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The Debate:
Infrastructures for Development
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Debates for developed economies are less clear than those for
the developing
The World Bank:
 “Transport is central to development. Without physical
access to jobs, health, education and other amenities, the
quality of life suffers; without physical access to resources
and markets, growth stagnates and poverty reduction
cannot be sustained. Inappropriately designed transport
strategies and programs, however, can result in networks
and services that aggravate the condition of the poor, harm
the environment, ignore the changing needs of users and
exceed the capacity of public finances.”
The Debate:
Infrastructures for Development
Macroeconomic studies by the World Bank
show that investing in transport promotes
growth by increasing the social return to
private investment without crowding out other
productive investment
 Microeconomic analysis confirms the high
social value of transport: The estimated
economic rate of return on transport projects at
completion is 22%, half as the Bank average
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Open questions on transport
infrastructure and regional development
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Is the growth impact of any new transport link in
developed countries likely to be significant?
Are transport costs a small part of total
production and labour costs?
Are buoyant local economic conditions more
important than transport infrastructure
improvements in generating growth?
Are the unique characteristics of the area and the
spatial extent over which the growth impacts are
to be felt considered?
Can one generalise about the results from
specific case studies?
Open questions on transport
infrastructure and regional development
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What is the role of technological change in affecting the
relationships between transport investment and
economic growth?
How slow, long term and complex are the adjustment
and readjustment processes within the regional economy
following a transport investment?
Does a good transport infrastructure raise the image and
the perceptions of an area, thereby attracting additional
private investment?
How can one assess the course of economic
development in an area if the transport investment was
not made?
What is the role of expectations, regarding the impacts
of investment, in achieving growth?
Evaluating Transportation Alternatives
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The concept of an evaluation is simple, the
process can be complex
Example: improving safety at a railway grade
crossing
It may be based on citizen complaints about
accidents or time delays at the crossing site
Many ways to solve the problem. Each solution or
alternative will result in a unique outcome in terms
of project cost and results (install gates and
flashing lights; construct a grade-separated
overpass)
Different solutions (cost and effectiveness)
Evaluating Transportation Alternatives
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A transportation improvement is a mechanism for
producing a result desired by society at a price
Question: Will the benefits of the project be worth the
cost?
In some cases, the results may affect the users of the
system, in others, those affected may include persons
in the community who do not use the system
Evaluating Transportation Alternatives
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Basic questions and issues to be considered before
beginning an analysis to evaluate transportation
alternatives
These assist in determining the proper approach to
be taken, what data are needed, what analytical
techniques should be used
Objectives of evaluation
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What information is needed for project selection?
The objective of an evaluation is to furnish the
appropriate information about the outcome of each
alternative so that a selection can be made
Different methods of evaluation can used,
depending on the project, the use of the evaluation
(public participation or not), the relative outcome
expression (single number? Individual results for
each criteria and each alternative?), or if post-facto
evaluation is applied
Identifying project stakeholders
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Who will use the information?
A variety of groups can be affected by a
transportation project
 System users
 Transportation management
 Labour
 Citizens in the community
 Business
 Local, regional and national administration
Each of these groups will be concerned with
something different
The viewpoint that each represents will influence
the evaluation process itself
Selecting and Measuring
Evaluation Criteria
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Goals and objectives of each transportation
project: they are made operational as criteria
The numerical or relative results of each criteria
are called measures of effectiveness
Railway grade crossing example: If the goal is to
reduce accidents, the criteria can be measured as
the number of accidents expected to occur for each
of the alternatives considered. If another goal is to
reduce waiting time, the criteria could be the
number of minutes per vehicle consumed at the
grade crossing. Non-quantifiable criteria can also
be used and expressed in a relative scale (high,
medium, low)
Selecting and Measuring
Evaluation Criteria
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It is important that the criteria are related as closely as
possible to the stated objective
If the objective of our course is to learn “Transport
Infrastructure and Regional Development’, then a relevant
criterion to measure results is exam grades, or the
performance of a student in preparing and presenting a
topic. A less relevant criterion is the number of class
lectures attended. Both are measures of class performance,
but the first is more relevant in measuring how well one
achieved the stated objective
Other attributes of criteria apart from relevance:
 Should be easy to measure
 Must be sensitive to changes made in each alternative
The number of criteria should be limited to those that will
be the most helpful in reaching a decision – too much
information can be confusing, can create uncertainty
Examples of criteria used in
transportation evaluation
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Capital costs
 Construction
 Expropriation costs
 Vehicles
Maintenance costs
Facility operating costs
Travel time cost
 Total hours and cost of system travel
 Average door-to-door speed
 Distribution of door-to-door speeds
Vehicle operating costs
Accident costs
Measures of effectiveness
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How are measures of effectiveness used in the evaluation
process?
First approach: Convert each measure to a common unit,
then for each alternative compute the sum of all measures
Common unit = money (see: Cost-Benefit Analysis)
If all relevant criteria are transformed into money, a
comparison of each alternative from an economic point of
view can be made
Railway crossing example: If the cost of an accident is
known and the value of travel time can be determined, then
it would be possible to compute a single number that
would represent the total cost involved for each alternative,
since construction, maintenance and operating costs are
known on money and the accident and time costs can be
computed using conversion rates
Measures of effectiveness
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Second approach: Convert each measure of effectiveness
to a numerical score
Example: if a project alternative does well in one criterion,
it is given a high score; if it does poorly in another
criterion, it is given a low score
A single number can be calculated that represents the
weighted average score of all measures of effectiveness
that were considered (see: Multi-Criteria Analysis)
Similar approach to calculating grades in a course
In this case, measures of effectiveness should be
independent of each other; if correlated, then adding up the
weighted scores will bias the outcome
Third approach: To identify the measures of effectiveness
for each alternative in a matrix form, with no attempt to
combine them
How do we build “value for
money” transport projects?
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The work includes forecasting growth in road
traffic and other transport use (transportation
models), assessing the impacts of transport and
other policies on these forecasts, developing and
supporting appropriate methods for predicting the
transport and economic impacts of road and other
transport improvements, and setting the
framework for assessing whether transport
schemes are value for money