September 18, 2008

Transport and Economic Change:

Background Concepts

GE 541

Review so far of Transport Impacts on:

Socioeconomic and urban development

Supported by statistical and descriptive evidence

A preliminary level of understanding

A fuller understanding of transport-development relationships would require understanding of change agents and the processes they operate through, cause and effect mechanisms and the like.

Explanatory models of transport developments and socioeconomic change of varying levels of sophistication exist, and we will survey some of these models.

Prior review of background concepts of transport and development necessary.

Economic flows, capital, and infrastructure

Slow and fast processes

Economic Growth and Development

Growth --- a matter of scale Development --- a structural change, reflecting a change in the environment of the decision agent, and a new behavioral pattern

Large, lumpy, and long-lived

Economic and Social Overhead

Provision of transport facilities and different utilities enhances the productivity of producer capital (machinery, equipment, livestock, etc.) and of consumer capital (housing).

Investments in education, heath care, recreation enhances the quality of human resources through improved skills, reduced absenteeism, etc.

Infrastructure

The term ‘Infrastructure’ used in economic development literature since 1940s impressionistically --- Rosenstein-Rodan, Nurske, and Hirschman.

Youngson’s view of infrastructure: Not a set of things but a set of attributes. Two attributes recognized.

Capital can be viewed as infrastructure to the degree a) it is a source of external economies, and b) it has to be provided in large units ‘ahead of demand’.

Both criteria imply the desirability of some public investment (since, given the external effects, private investment tends to be not socially ideal).

Provision ahead of demand is an ex post argument (satisfactory when outcome is known).

Argument for such provision strong when infrastructure is non-specific in character, which can be used for production of many types of final outputs such as education infrastructure.

Direct and indirect benefits of a novel idea

Stock of Infrastructure has several effects on the level and mix of productive activities:

* reduces the prices of material and labor inputs and increase efficiency and,

* capacity increase leads to a better quality of service — 6-lane highway has more capacity and faster and safer than a 2-lane highway— creating new demands.

b e

c

Output

Cost ($)

d

Q1 Q2

MC1 MC2

Price

a

Infrastructure and the Efficiency of Production

Services, information activities, and communication infrastructure

Over the second half of 20th Century, US and other industrialized countries have had a structural shift towards services.

Country 1920 1950 1970 1982USA 38.4% 51.7% 61.5% 68.0%UK 43.7% 45.8% 51.9% 62.6%France 26.9% 33.9% 43.7% 57.2%W. Germany 27.7% 36.5% 45.9% 51.8%Italy 18.6% 25.1% 30.4% 50.6%Japan 22.4% 27.0% 40.0%

Long-term Shifts in the Employment Share of Service Sector, 1920-1980

* Income elasticity for services > 1. Complementarity of consumption of goods and services * Rise of transaction costs (risk, uncertainty, asymmetrical distribution of information, coordination and control), and Adjustment costs ( production of skilled labor, special capital goods, and new organizations). This leads to new human capital and producer services.

* Slower productivity growth in some service sectors; share of services employment grows.

Three Reasons for Services Growth:

Growth segments of service sector;

* Final services e.g. education and health — sophisticated, internationalized sector of service production,

* Producer Services: Increasing global division of labor, global corporations, importance of coordination and control, and

* Producer service-like functions in the public sector: the need to protect consumer interest, workers’ rights, environment, equal opportunity, promotion of national economic interest in a global economy.

Increasing need to integrate and coordinate the increasingly differentiated, and specialized parts of a global economy.

Need for ‘economic intelligence’, ‘technological and scientific information; and information pertinent to transport of goods and services across space.

‘information economy’, ‘Knowledge industries’

Information Producers

Users of Information as input

to productionBell (1973)

Knowledge Industries

Machlup (1962) Uno (1982)

Porat (1976)

Different Definitions of Information Activities

Country 1840 1850 1860 1870 1880 1990 1900 1910 1920 1930 1940 1950 1960 1970 1980US 5.8 4.8 6.5 12.4 12.8 14.9 17.7 24.5 24.9 30.8 42.0 46.4 46.6UK 4.6 5.1 5.6 6.8 7.9 10.2 12.4 13.3 19.8 20.9 24.4 27.8 33.1 36.6Germany 18.3 24.6 30.7 33.2Australia 8.5 11.5 15.6 16.3 17.0 22.5 27.5 30.2

Information Workforce Trends 1840-1980

(% of total workforce)

1973 1976 1979 1982 1986Revenues ($ Billion, 1982$) 41.8 51.6 66.5 78.89 97.02Capital expenditures ($ Billion)

11.8 12.9 20.18 22.53 24.9

Cumulative Gross PlantInvestment ($ Billion)

94.8 121.6 155.2 202.35 251.0

Total employment (,000) 1,007 961 1,070 1,100 884Production workers (,000) 780 730 789 790 659

The U.S. Telecommunications Sector

Communication infrastructure

The information highway

Information investments and Service sector growth relationships?

Simple transfer of ideas from models of goods production problematic

Service Transformation attributes

Joint provision of goods and services

Service consumption complementary to goods consumption

Globalization of production with the functional differentiation between production and service delivery on the one hand, and central R&D, administration and control offices on the other has created a variety of intermediate services.

Variety of producer and intermediate services increasing and demanding cheap supply of information. The increased density, speed, and quality of information flows (e.g. logistics) has been to ‘transport services.

Some consumer services and the ‘Cost Disease’ (Baumol)

Some form of ‘industrialization’—McDonalds

Other cost reduction innovations: task subdivision, capital intensification, economies of scale, and transfer some part of service production from the market to consumer

Manufactured products (autos, TVs), plus intermediate services (repair services, TV programs) plus physical infrastructure (roads, broadcast networks, power networks) plus on paid ‘informal’ (household) labor to produce transportation and entertainment services, ---Combinations of industrial goods, intermediate services, infrastructure, and time.

Resource InputsProduction Activity

Goods

Environmental Residual

Production of Goods (after Garn et al., 1976)

Producer Activities

Resource Inputs

Jointly Produced

Consumer Assets&

Attributes

Consumer Activities

The Production of Service Output (after Garn et al., 1976)