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