Empirical analysis of transportation investment and economic development at state, county and municipality levels

Numerous studies have found positive correlation between transportation infrastructure investment and economic development. Basically these studies use a conventional production function model augmented by a public capital input, mainly highways, rail and other transportation facilities. While the range of the measured economic growth effects varies widely among studies, the positive elasticity between transportation investment and economic development is now commonly accepted. Still a major puzzling issue is that the magnitude of the measured effect seems to decline significantly as the econometric model is further refined, mainly with regard to space and time lags. That is, the use of national or state data produces elasticity results, which are much larger than when using county or municipality data. Similarly, when we introduce into the econometric model a lag between the times when the transportation investments are made and when the economic benefits transpire, the measured elasticities decline with the size of the lag. Thus, the main objective of this paper is to investigate these issues analytically and empirically and provide a plausible explanation. We do so by using alternative econometric models, applying them to a database, which is composed of longitudinal state, county and municipality observations from 1990 to 2000. The key result is that transportation investments produce strong spillover effects relative to space and time. Unless these factors are properly accounted for many reported empirical results are likely to be overly biased, with important policy implications.     

Book Review

This paper examines the relationship between investment in transportation infrastructure capital and the debt-to-gross domestic product (GDP) ratio. We analyse the effect of bringing forward investment originally planned for future years to be executed during times of economic crisis and also consider the possible advantages of carrying out such investments with private sector financing. This paper presents a model which shows how policy aimed to encourage investment in transportation infrastructure projects through private sector participation may help raise long-term GDP and thus lead to a lower debt-to-GDP ratio. The theoretical model is then applied to current empirical data from Israel.     

Appraising large-scale investments in a metropolitan transportation system

A package of large-scale investments in the transportation infrastructure in the Stockholm metropolitan region is currently being proposed. It contains new investments in the railway and subway systems as well as new links in the road system. This paper deals with the issue of appraising this kind of investment program. One major problem is the lack of a unique standard method, and it is argued that several tools should be used in a practical evaluation of large-scale investments in the transportation system.Four different approaches are presented and related to each other. First, one study uses a network-based mode-split/assignment model with a fixed trip matrix. The second study is complementary, as its aim is to also trace the impacts on the spatial distribution of population and jobs by applying an integrated transportation and land use model. Third, the long-run effects of the investments on regional economic growth are discussed within the framework of regional production functions. Fourth, an alternative approach is used, in which benefits from the investments are assessed through their estimated influence on aggregate land values.Abbreviations RA Reference Alternative - IP Investment Proposal - IMREL Integrated Model of Residential and Employment Location - RPFM Regional Production Function Model An earlier version of this paper was presented at the 31th European Congress of the Regional Science Association, Lisbon, August 1991.     

Timing rules for major transportation investments

The timing decision for major transportation investments – when to build – typically is made without an objective approach for considering the economic value of implementation at different times. This paper uses a model of benefit-cost analysis and derives rules for timing major transportation investments. Three sets of conditions are considered, depending on whether annual benefits of an investment are uncertain and whether the objective is to maximize net present value or simply to achieve positive net present value. The timing rules under each set of conditions are stated in three forms: benefit-cost ratio, annual benefits, and implementation time. The paper compares these timing rules analytically, discusses potential applications, and illustrates them with a numerical example. Consequences of incorrectly using the timing rules are also examined with the example. This revised version was published online in June 2006 with corrections to the Cover Date.     

Estimating traffic demand risk – A multiscale analysis

This paper proposes a novel method for estimating the traffic demand risk associated with transportation. Using mathematical properties of wavelets, we develop a statistical measure of traffic demand sensitivity with respect to GDP. This measure can be adapted in a flexible way to capture risk levels relevant for different investment horizons. We demonstrate the timescale decomposition of risk with Swedish traffic demand data for 1950–2005. In general, rail transport shows a stronger co-movement with GDP than road transport. Moreover, we examine the volatility exhibited by traffic demand. Our findings suggest that rail investments are more risky than road investments. Since the findings can be used for optimal investment timing and for choice between public investment alternatives, they are deemed important for public policy in general.     

An optimization model of energy and transportation systems: Assessing the high-speed rail impacts in the United States

This paper presents a long-term investment planning model that co-optimizes infrastructure investments and operations across transportation and electric infrastructure systems for meeting the energy and transportation needs in the United States. The developed passenger transportation model is integrated within the modeling framework of a National Long-term Energy and Transportation Planning (NETPLAN) software, and the model is applied to investigate the impact of high-speed rail (HSR) investments on interstate passenger transportation portfolio, fuel and electricity consumption, and 40-year cost and carbon dioxide (CO₂) emissions. The results show that there are feasible scenarios under which significant HSR penetration can be achieved, leading to reasonable decrease in national long-term CO₂ emissions and costs. At higher HSR penetration of approximately 30% relative to no HSR in the portfolio promises a 40-year cost savings of up to $0.63 T, gasoline and jet fuel consumption reduction of up to 34% for interstate passenger trips, CO₂ emissions reduction by about 0.8 billion short tons, and increased resilience against petroleum price shocks. Additionally, sensitivity studies with respect to light-duty vehicle mode share reveal that in order to realize such long-term cost and emission benefits, a change in the passenger mode choice is essential to ensure higher ridership for HSR.     

Port investments on coastal and marine disasters prevention: Economic modeling and implications

Located along shorelines, seaports are highly vulnerable to coastal and marine natural disasters largely due to climate change. Damage caused by disasters can be prevented or alleviated if sufficient investments are made in a timely manner. However, despite a wide range of investment options and well-developed engineering expertise, port investment on disaster prevention remains a challenging task involving great complexities. This paper develops an integrated economic model for the analysis of disaster-prevention investments at a “landlord” port. It simultaneously considers the uncertainty of disaster occurrence and associated return of prevention investments, the information accumulation and related investment timing, and the benefit spillovers of investment among stakeholders. Our analysis shows that the timing of port investments depends on the probability of disasters. Immediate investment is optimal for disasters with very high probability, while investment should be postponed if such a probability is very low. Optimal timing for cases of intermediate probability cannot be determined analytically, as it is influenced by other factors such as discount rate, information accumulation and efficiency of investments. Positive spillovers between a port and its tenants lead to under-investment, which can be corrected by coordination between stakeholders. However, since there are risks of “overinvestment” (the marginal benefits of investments are zero ex post if there is no disaster), regulatory intervention is not always optimal when the regulator does not have a good understanding of disaster probability distribution. Therefore, scientific research would bring significant economic and strategic value to policy, planning and investment decisions.     

A multi-objective optimization approach to balancing economic efficiency and equity in accessibility to multi-use paths

Improving public health through active transpiration investments has increasingly become a new research focus in transportation planning. This study is to propose a multi-objective optimization modeling framework, through an optimal allocation of active transportation investments, to maximize the total accessibility while minimizing the total differences in accessibility over a city. Accessibility to multi-use paths is calculated for Fresno, California that measures the total length of multi-use paths a resident could reach with a 30-min cycling ride. Then, a geographically weighted regression (GWR) model is used to capture the local relationships between accessibility outcome and previous transportation investments. The marginal-effect analysis for the GWR results indicates economically efficient, inefficient, and indifferent locations for further investments. This study is one of the few to incorporate such a GWR model into a multi-objective optimization modeling framework to improve accessibility to multi-use paths and address inequality issues in transportation. Solving the multi-objective optimization model provides decision-makers a new insight into the making of an economically efficient and socially equal active transportation plan to improve public health.

     

New highways and land use change: Results from a quasi-experimental research design

Understanding links from new highway construction or capacity expansion to regional growth patterns is crucial for transportation planners and policy makers. In this paper, we incorporate a lagged adjustment regional growth model into a quasi-experimental research design to examine the association between new highway investments and land use change in three California counties. Our study areas provide a mix of urban, small town, and exurban highway projects in order to explore the different effects across project types and geographic contexts. The central finding of this research is that while improvements in surface transportation infrastructure can have large impacts on growth patterns, the nature of the effect depends on the context of the highway investment.     

Exploring active transportation investments and associated benefits for municipal budgets: a scoping review

Municipalities play an important role in the planning and development of communities that support active transportation (AT), which refers to human-powered modes of travel, such as walking and cycling. Municipal-level stakeholders involved in land-use and transportation infrastructure planning consider multiple social, environmental and economic considerations to inform decision-making and investments in AT. Evidence around the fiscal benefits of AT investment for local governments has not been systematically identified. This scoping review sought to explore the existing evidence regarding investments in AT and opportunities for savings on municipal expenditures and revenue generation. In total, 7060 records were located and screened; of which 162 full-text articles were reviewed. Ultimately, 23 articles met our inclusion criteria and were included in this review. The available evidence focuses on potential economic benefits of AT in the areas of tax revenues, property values, consumer spending and employment, all of which are relevant sources of revenue generation in municipal operating budgets. An evidence gap was identified regarding AT infrastructure investments and benefits corresponding to municipal expenditures (e.g. maintenance cost savings). Notably, a large portion of literature was published after 2009, suggesting that municipal-level evidence on the fiscal benefits of AT investments may just be emerging.     

Neighborhoods,cars, and commuting in New York City: A discrete choice approach

Cities around the world are trying out a multitude of transportation policy and investment alternatives with the aim of reducing car-induced externalities. However, without a solid understanding of how people make their transportation and residential location choices, it is hard to tell which of these policies and investments are really doing the job and which are wasting precious city resources. The focus of this paper is the determinants of car ownership and car use for commuting. Using survey data from 1997 to 1998 collected in New York City, this paper uses discrete choice econometrics to estimate a model of the choices of car ownership and commute mode while also modeling the related choice of residential location.The main story told by this analysis is that New Yorkers are more sensitive to changes in travel time than they are to changes in travel cost. The model predicts that the most effective ways to reduce both auto ownership and car commuting involve changing the relative travel times for cars and transit, making transit trips faster by increasing both the frequency and the speed of service and making auto trips slower – perhaps simply by allowing traffic congestion. Population density also appears to have a substantial effect on car ownership in New York.     

Incorporating uncertainty and risk in transportation investment decision-making

This paper presents a framework for addressing uncertainty and risk for large-scale transportation investments involving public–private participation. Demand, fare/toll and demand responsive costs are considered in the uncertainty analysis. Uncertainty analysis provides information on economic feasibility of the project. A set of relaxation policies is proposed to form various Ownership, Tenure and Governance (OTG) strategies reflecting the nature and level of participation by the public and private entity. A Monte Carlo Simulation-based Value at Risk is used to quantify risk. Finally, a methodology is proposed to integrate uncertainty and risk. The framework is tested on the proposed multibillion dollar Detroit River International Crossing connecting the cities of Detroit in the USA with Windsor in Canada. The analysis provides insights to probable outcomes for this transportation infrastructure investment under different OTG scenarios.     

Financing congressional earmarks: Implications for transport policy and planning

This research documents the primary strategies used by the US Congress to fund transportation earmarks from the early 1990s to the mid-2000s. It draws on careful analysis of funding bills and primary and secondary sources including government reports, industry and policy newsletters, scholarly articles, and publicly available data on earmarks. It is also informed by interviews with transportation stakeholders involved with earmarks at federal, state, and regional levels. By detailing how Congress pays for earmarks, I show that earmarks do more to redistribute than add to existing transportation resources, and that the intricacy of Congressional funding maneuvers can make earmarks’ fiscal impacts hard to discern. Several implications follow for transportation policy and practice. First, critiques that earmarks increase federal transportation spending are misplaced. While such claims make it easy to discredit national investment in transportation, skepticism is in order when earmarks are invoked to throw out the baby with the bathwater. Second, earmarks’ true costs are related not to increased deficits but rather to opportunity costs incurred when unplanned earmarks replace other investments, particularly projects identified through regional and state planning or competitive selection by an executive agency. Finally, this work suggests productive directions for future earmark reform, such as limiting earmarks to projects in regional or state plans and making explicit for any earmarks in a bill the funding mechanisms that support them. Such steps could lessen the opportunity costs (and administrative inefficiencies) of earmarks, increase transparency in earmarking, and potentially make the practice less objectionable if used to facilitate passage of the long overdue surface transportation authorization bill.     

Overview of new technology information systems for public transport passengers in French towns

Cost–benefit analysis (CBA) for transport investments is particularly useful for situations where a large number of investments have to be ranked against each other. This study draws on experiences from the development of the Swedish National Transport Investment Plan 2010–21. We study how CBA results were used in the process of shaping the investment plan and what influence they had on investment decisions. In particular, we compare the planners' rankings versus the politicians' rankings. We find that planners' rankings of investments are influenced by benefit–cost ratios (BCRs), in particular for low and moderate BCRs, while the politicians' rankings are not. By interviewing planners about how CBA was used in the process, we clarify what role CBA actually played in the planning process. We find that not only did the CBAs play a role in investment selection, they also forced investment design to be more cost-efficient. Furthermore, we explore planners' implicit valuations, as revealed by their investment selection, finding that freight benefits were implicitly valued higher and traffic safety lower than the officially recommended CBA weights. Finally, we identify the most important areas for improvement of CBA state-of-practice methodology.     

Airline ambidextrous competition under an emissions trading scheme – A reference-dependent behavioral perspective

This study presents a reference-dependent Hotelling model for analyzing airline competition in pricing and green transportation investment, as well as the resulting financial performance under the European Union emission trading scheme. One feature of the proposed methodology is that it embeds psychological benefits/costs of consumers to characterize consumer attitudes to the increases in airline fare adjustments and improvements in green transportation. This study then investigates the equilibrium solutions for airfare adjustment and green transportation investment margins in different scenarios. The analytical results reveal specific operational conditions under which a cost-efficient airline can gain supreme competitive advantage by increasing both airfare and green transportation investment margins beyond the increases made by competitors under the emission trading scheme, whereas certain specific conditions may favor a cost leadership strategy. Conversely, a cost-inefficient airline can compete with a cost-efficient airline in both market share and profitability using the green transportation investment-differentiation strategy, particularly when consumers perceive the airfare difference as equaling the increased psychological benefit induced by the airline’s green effort.     

A volatile relationship: The effect of changing gasoline prices on public support for mass transit

The determinants of public opinion toward public transit is a little-researched topic, though a better understanding of what makes consumers willing to support transit may reveal which attributes of transit consumers value most. One determinant of people’s willingness to support investments in mass transit may be the price of fuel for transit’s principal competition, the private automobile. In this paper, I examine the relationship between the cost of gasoline and stated willingness to invest public money in mass transit improvements. I hypothesize that fuel price volatility—in addition to price itself—is a determinant of support for more mass transit funding, controlling for other factors. As the price of gasoline becomes more uncertain, the public should, all else equal, support investment in mass transportation, a form of transportation that may provide some measure of protection from the price of fuel. Results suggest a strong effect of price volatility on consumers’ willingness to support transit expenditures.     

Transport in developing and emerging nations

One perspective on the allocation of transport investments by public authorities is offered by the so‐called ‘pork barrel’ model, whereby politicians and political parties allocate public investment spatially in such a way as to gain electoral support from localities so benefited. The paper introduces this model and discusses its attractions and problems in the case of the transport sector. A review of the modest number of published examples of this approach is offered before a detailed case study considers the case of railway investment in Nelson, New Zealand.     

A methodology to estimate the revenue anticipated from State-level alternative financing approaches in the US

A major issue that State Departments of Transportation (DOTs) in the US face relates to financing future transportation investments. Questions of interest to State DOT officials relate to the suitability and revenue potential of alternative financing approaches. This paper presents a methodology to estimate the potential levels of revenue associated with the use of selected combinations of financing approaches and to assess the adequacy of these revenues vis-a-vis various levels of investments being considered by decision-makers. The methodology is designed to accommodate a wide array of inputs such as major policy objectives and initial assumptions that may vary significantly from State to State in order to provide a greater flexibility of implementation. The application of this methodology is demonstrated with an illustrative example for Massachusetts. This paper should be of interest to State DOTs seeking an acceptable combination of financing approaches to support future transportation investments.     

Seaport investments in capacity and natural disaster prevention

Most seaports face constraints in financial resources to some degree, and thus need to balance the investments in capacity and natural disaster prevention. On the one hand, due to budget constraint, limited resources need to be allocated between the two tasks. On the other hand, the benefit of natural disaster prevention investment is likely to be higher for ports with larger capacity. This study builds a stylized analytical model to examine the managerial and policy implications of such interactions between the two counteracting mechanisms. We find that the port managers would always prioritize capacity investment over natural disaster prevention investment. Social welfare maximizing ports invest more in both capacity and disaster prevention than those chosen by profit maximizing operators. However, compared with profit maximizing ports, welfare maximizing ports also require a larger budget to justify the investment in disaster prevention. Moreover, with increasing intensity of natural disaster, a port’s capacity investment decreases and its disaster prevention investment increases, irrespective of its objective. The magnitudes of both changes are larger for welfare maximizing ports than for profit maximizing ports.