Transcript Transport Investment, Transport Intensity and Economic Growth

Transport Investment, Transport
Intensity and Economic Growth
SACTRA, 1999
Standing Advisory Committee on Trunk
Road Assessment
and Implications for the World Bank
Four questions to be addressed by
project appraisal
• What is the rationale for the intervention?
• What are the net benefits, calculated using
the best conventional CBA and assuming a
perfectly competitive economy?
• What are the total economic impacts of the
intervention?
• What is the pattern of gains and losses?
Issues covered by SACTRA
• Impacts of transport on the economy
• Linking mechanisms between transport and
the economy
• Transport intensity of the economy
• Implications of transport/economy linkages
for project appraisal
• Current appraisal practice
• Recommendations for improved appraisal
Transport and the economy
How can transport influence economic performance?
• Reorganization or rationalization of production,
distribution and land use;
• Increasing the catchment area of labor markets,
hence reducing labor costs;
• Other increases in output resulting from lower
production costs;
• Stimulation of inward investment;
• Unlocking inaccessible regions for development;
• Multiplier effects of growth on more growth.
Transport and Economy linkages
Two types of model are available to analyze transport linkages
to the economy – Land use transport interaction models (LUTI)
and macroeconomic models such as Computerized General
Equilibrium Models (CGE).
Transport intensity
• UK is concerned about reducing the transport
intensity of the economy, that is the total transport
demand (ton km plus pass km) per million $ of
GDP. Evidence is that this has increased
significantly over the last twenty years or so, but
there has been a reduction in ton km more than
compensated for by an increase in pass km. Year
to year variations have been large and difficult to
explain.
Does conventional CBA cover economic
impacts?
• Under assumptions of perfect competition
throughout the economy, the estimated costs and
benefits to transport users and non-users could
give a full and unbiased estimate of the total
economic impact of a project.
• But it would not indicate the incidence of the net
benefits as the initial recipients could be different
to the final recipients
• Difficulties in correctly specifying the demand
functions to include broader impacts
Implications for Project Appraisal (i)
• Little empirical evidence of broader impacts, and what
there is is contradictory. Some indicates significant impact
on rates of economic growth, most suggests that there is
some impact but that it is small.
• The state of the art is poorly developed, and the results do
not offer convincing evidence of the size, nature or even
direction of regional and local impacts
• Any generalizations about the impacts are subject to strong
dependence on specific local circumstances and conditions
Implications for Project Appraisal (ii)
Imperfections in the economy:
• Price levels for goods and services which differ
from their resource costs if there are distortions
caused by imperfectly competitive product, labor
or other markets;
• External costs, such as congestion and
environmental damage, both in the transport and
other sectors of the economy, which are not
included in the prices charged for products and
services.
Implications for Project Appraisal (iii)
• If these imperfections exist, the initial value of
“transport” impacts will not be the same in total as
the final “economic” impacts. Even a ‘fully
specified’ CBA would still miss some wider
economic effects.
• These wider effects could be positive or negative.
There is no basis for judging whether the positive
cases are more or less frequent than the negative
cases.
Spatial distribution effects
Two issues – inclusion and direction
• There is no guarantee that the geographic limitations of
conventional CBA will include all the wider economic
impacts, especially the negative effects away from the
direct area of influence
• Transport projects are often aimed at increasing
accessibility to remote regions. But since roads are two
way, they can have a detrimental rather than beneficial
impact by subjecting industries previously protected by
inaccessibility to more efficient producers at the “other
end” of the road
Some considerations
• If we assume perfect competition in the transport using
sectors of the economy, a correctly specified benefit
estimate will include all the effects on the economy;
• Not all aspects of economic welfare (eg the benefits of
leisure travel to the individual) are included in GDP;
• Under conditions of imperfect competition, even correctly
specified benefit calculations might over or under estimate
the true effects on the economy;
• Conventional CBA does not identify the actual gainers and
losers from the investment being evaluated.
• Correctly specifying the demand curve in benefit estimates
is almost impossible.
Four Conclusions (i)
1. Models for appraising the wider economic impacts on the
economy, including the distribution of benefits, involve
many difficult questions the answers to which are not
obvious or capable of resolution in the foreseeable future,
although some important linkages have been identified.
Further development of LUTI and CGE models is needed.
2. At this stage, the evidence suggests that a fully specified
cost benefit analysis will often provide a good
approximation to the size of total economic impacts.
Four Conclusions (ii)
3.
4.
However, the wider economic impacts should still be
considered because there are many cases when the
conventional cost benefit analysis may be seriously in
error and because the distributional effects also need to
be known.
Economic Impact Reports should be produced for all
schemes, to go alongside the traffic, environmental and
economic evaluations already undertaken.
Guidance on the Economic Impact Report
Guidance on Economic
Impact Report
Stage 1
December 2001
DTLR
76 Marsham Street
London
SW1P 4DR
• Use project impact on an
Accessibility to Jobs index
• Provide a description of the
economy of the region to be
impacted by the project, particularly
resources available and access to
markets
• Provide a profile of the population,
indicating skills available and
business knowledge
• Indicate any labor and other
constraints on economic growth that
might be available in adjacent
regions
• Indicate other interventions needed
to provide context for growth
• Indicate potential negative
accessibility impacts
ADB - Distribution of Project Effects 1
• Project sustainability is strongly affected by who benefits, and
by how much, relative to who pays.
• One form of distributive analysis considers the distribution
among operators, customers, and government, and how it is
affected by different charge levels. This first step
disaggregates the financial impact of the project on the main
six beneficiary groups:
• the owners of project operating entity,
• those working in the project,
• the government,
• the consumers of project outputs, and
• those providing material inputs to the project, and
• lenders to the project.
ADB - Distribution of Project Effects 2
• A second form of distribution analysis considers the
distribution of net benefits among beneficiary groups
according to their income level. A particular focus on net
benefits going to the poor is pertinent to public utility
projects that often focus on or at least include the least
well-off.
• For road sector projects, the benefits to different final
users can be broken down among users with different
income levels. Such statements, showing the distribution
of financial benefits, can be the basis of assessing the
division of benefits between the poor and non poor
Considerations for the World Bank
• Is conventional CBA deficient in addressing our project
Development Objectives, and if so do we need to change
or add to the way we currently undertake CBA ?
• Do we need to comply more with the Guidelines for
Economic Analysis of Investment Operations?
• Do we need to improve our analyses of the distribution of
benefits to different income groups?
• Is there a need to provide something like an Economic
Impact Report as part of a transport strategy that provides
the framework for our investment projects?
• If any of the answers are Yes, how should be go about
implementing any changes?
What are we doing to address these issues?
• Less ambitious Project Objectives
• Economic Evaluation Notes on difficult topics –
including Demand Projections and Distribution of
Benefits
• Research: Social Rate of Return on Infrastructure
Projects
• Research: Infrastructure, Productivity and Economic
Development (India)
• Research: Pilot studies of the impact of transport
investment on economic growth (China)
• Evaluation: Include distribution of benefits in
economic evaluation of some projects. Could be
expanded
Some suggestions for further action
• More country studies of the impact of transport
investment on economic growth, perhaps to be included
in Sector Strategies;
• More reviews of social and economic impacts of specific
projects (such as Morocco, Socioeconomic Influence of
Roads, 1996)
• More analysis of competitiveness in the transport sector,
for example the structure and regulation of the trucking
sector that can have an important influence on the
distribution of project benefits.
• Include distributional analysis of benefits in the (as for
ADB and as indicated in Economic Evaluation Note 20)