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INVESTMENT IN TRANSPORT INFRASTRUCTURE AND ECONOMIC DEVELOPMENT: RECENT DEBATES
IN THE UNITED STATESAndrew R Goetz
Department of Geography and Intermodal Transportation Institute
University of Denver
Transport Studies Unit Seminar Series Oxford University
9 March 2011
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ECONOMIC CRISIS OF 2008:$700 Billion US Government Bank
Bailout and Economic Fallout
Source: Financial Forecast Center 2009
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DEBATE OVER ECONOMIC STIMULUS PACKAGE
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US TRANSPORTATION INFRASTRUCTURE CRISIS
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INTERNATIONAL TRADE
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Growth in Trade as a Percentage of US GDP
Source: AASHTO (2007) Transportation: Invest in Our Future
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HIGHWAYIMPACTS
Source: Bingham 2006
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INTERSTATE BOTTLENECKS
Source: AASHTO (2007) Transportation: Invest in Our Future
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Traffic Congestion
Source: AASHTO (2009) Transportation: Are We There Yet? The Bottom-Line Report: 2009, p. 21.
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Minneapolis I-35W Bridge CollapseAugust 1, 2007
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BRIDGE CONDITIONS
Source: AASHTO (2009) Transportation: Are We There Yet? The Bottom-Line Report: 2009, pp. 22-23.
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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 Americas future to:
Create and sustain the preeminent surface transportation system in the world.
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Opposing Perspectives
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Public Spending in Japan
1990-2000: Japans 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) Tokyos wasted trillions buy a costly lesson. International Herald Tribune, February 6, 2009
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Proposed Gravina Island Bridge: Alaskas 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
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Economic Impacts of Transport Infrastructure Investment
1. Conceptual and Theoretical Background2. Review of Empirical Literature
a. Summary of pre-2000 periodb. Analysis of post-2000 studies
3. Recent Debates in the United Statesa. American Recovery and Reinvestment Act of 2009b. New Jersey Tunnel Projectc. Federal High-Speed Rail Program
4. Conclusions and Areas for Future Research
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CONCEPTUAL AND THEORETICAL BACKGROUND
based in part on
Rietveld & Bruinsma 1998Banister & Berechman 2000Mikelbank & Jackson 2000
Bhatta & Drennan 2003Vickerman 2007
Lakshmanan 2010
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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
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Theoretical FoundationsClusters of Literature
TRADITIONAL ECONOMIC AND ECONOMIC GEOGRAPHY
PERSPECTIVES
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1. Microeconomic Analysis
Benefits to individual firms/households Cost/benefit analysis
Number of Trips
Cost/Trip D
D
S0
S1
T0 T1
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2. Macroeconomic analysisIncrease 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)
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3. Transport and International/Interregional Trade
and Spatial InteractionClassical trade theoryUllman (1956) 3 Bases
of Spatial Interaction Complementarity Transferability Intervening
opportunitiesTaaffe & Gauthier 1973Krugman 1991
Isolation
Region A Region B
Transport Link and Interregional Trade
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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)
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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
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Bypass Phobia
Why is Denver, one of this planets smaller major cities, building one of the worlds largest airports? . . . Denver suffers from by-pass phobia. As one of the worlds 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).
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Radiator Springs syndrome
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6. Transport and Urban Land Use/Values
Classical Urban Land Use Theory
Based on Von Thunen, Alonso
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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
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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?
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ALTERNATIVE THEORETICAL PERSPECTIVES
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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 efficientTransportationPrivatization, tolling,
congestion pricing
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Better Allocation of Public Investment
Sectors other than transportation will yield a greater economic development return
Other physical infrastructurewater, electric power, communication systems, internet connectivity
Social infrastructureeducational systems, job training
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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
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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
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Review of Empirical Literature
Summary of Pre-2000 PeriodAnalysis of More Recent Studies
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Early studies
US Interstate Highway system (eg, Garrison et al 1959)
Appalachian highways (eg, Gauthier 1973)Macroeconomic studiesJapan, 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
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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
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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.
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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
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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)
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Recent Debates in the United States: The Politics of Transport Investment
1. American Recovery and Reinvestment Act of 20092. New Jersey Tunnel Project3. Federal High-Speed Rail Program
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1. American Recovery and Reinvestment Act of 2009 (ARRA)
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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 report ing
requirementsSAFETEA-LU (2005) authorized $286 billion for surfa ce
transportation over 4 years
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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.
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2. New Jersey Tunnel ProjectNew 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 overrunsNJ on the hook
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3. Federal High-Speed Rail Program
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3 State Governors Reject High-Speed Rail Funds
Gov. Scott Walker, Wisconsin
Gov. John Kasich, Ohio
Gov. Rick Scott, Florida
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West Virginia Governor (now Senator) Joe Manchin takes Dead
Aim at Cap-and-Trade Bill
http://www.youtube.com/watch?v=xIJORBRpOPM&feature=related
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CONCLUSIONS
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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 benefits3. 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?
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Areas for Future ResearchProper role and type of transport in fostering
economic development Better methods in project analysismore
emphasis on selectivity and efficiency Differentiating economic impacts between
modes (Smart Growth America 2010)Continuing comparisons between projected
and actual resultsImportance of geographic and historic
contextcase studies
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Thank you