Transcript Diapositiva 1

Modelling the Effects of Improvements in Transport
Infrastructure
Nina Hyytiä & Jukka Kola
University of Helsinki
TERA Final Conference
Gent, August 26th, 2008
Background

Several EU, national and regional development
efforts to improve infrastructure:

To improve competitiveness, reduce regional disparities
and promote social and economic cohesion

TERA project aims at addressing the impact of
reduction of transport costs and distance on
rural/urban interactions
Comparative analysis in the WP1(Bednarikova et al
2005) revealed differences among the study areas




Finnish and Czech study areas are ‘highly remote’
Scottish and Latvian areas are ‘moderately remote’
Greek and Italian areas are of ‘low remoteness’
Background (2)
 Phimister et al (2006) “The TERA CGE model is such that
the simulations would allow for the full range of economic
interdependencies that exist within each economy as well
as allow for the interactions between rural and urban areas
within each study region. Model includes an explicit
transportation sector , allowing thus the consideration of
the impacts of changes in transportation costs on the
distribution of economic activity between the TERA rural
and urban locations”
 Even if transport costs are considered the most significant
costs of being remote (e.g. Kilkenny 1998) several studies
have indicated that investments on transport infrastructure
have a rather ambiguous impact on the development of
peripheral areas (References in: Pouliakas et al 2008)
Transport Infrastructure
CGE Simulations
• Pouliakas et al (2008): Simulations investigating
the economic impacts of transport infrastructure
investments in TERA should deal with two issues:
 “Economic impacts to be estimated here are permanent
and indirect, related to backward expenditure effects
of the use of the infrastructure as well as the
consequences of transport costs reduction for
production and location decisions of firms and households
and the subsequent economic effects.”
 “Because of the long term nature of these projects and
according to standard practices in this type of simulations,
shocks will be carried out under both short and long run
closures in order to account for factor-market rigidities.”
Specification and modelling the
shocks
•
A 20% growth in total productivity of the
transportation sector
 Modelled as a change in the efficiency parameter in the CES
activity function
• A 20% decrease in transportation costs for all
sectors
 The intermediate demand for the transport commodity declines
• SHORT RUN: capital formation is fixed/ rural and urban labour
markets are separate/ fixed quantities of activity specific factor
demands and fixed economy wide wages/ activity specific wages
and supply variables are flexible
• LONG RUN: flexible capital formation/ rural and urban labour
markets are integrated/ capital is mobile between activities and
regions
• Emphasize is on the distribution effects between rural and urban
areas
Case of North Karelia, Finland
• The easternmost
region in Finland
• 21 585 km2
• 167 500 inhabitants
• 7,8 inhabitants per
km2
• TERA urban area
Joensuu, ‘capital’ of
North Karelia, 57 500
inhabitants
Main Result
% Changes from Base Year Levels
Regional GDP at Factor Prices by Sector and
Location
LR
Productivity
+20%
SR
Productivity
+20%
LR
Cost
-20%
Rural
1,73
1,75
0,01
0
RuralPrim
0,25
-0,03
9,14
-0,01
RuralSec
-2,04
0,01
1,41
0,06
RuralTert
4,61
3,52
-4,47
-0,04
Urban
1,53
1,53
-0,12
0
UrbanSec
-2,67
0
2,51
0,13
UrbanTert
3,05
2,08
-1,07
-0,05
Total
1,64
1,66
-0,04
0
SR Cost
-20%
• Productivity+20%:
 Primary and tertiary sectors are
gaining (LR)
 Secondary sectors’ GDP down;
paper industry is hit the most
 Positive impacts larger in the
rural area, total effect is positive
• Costs -20%
 Primary and secondary sectors
are gaining; especially forestryrelated industries
 Tertiary sectors are losing; trade,
transportation and business
services
 Positive total in the rural area and
negative in the urban area
Main Result
% Changes from Base Year Levels
• Productivity+20%:
LR
Producti
vity
+20%
SR
Producti
vity
+20%
LR Cost
-20%
SR Cost 20%
PRVCON
1,91
1,51
1,6
1,61
Investments
29,32
 Increase in investments
 Primary and Secondary sectors’
exports decreased (agriculture,
paper, machinery, metal)
 Imports are increasing
 Domestic activity and domestic
sales are increasing
• Costs -20%
-72,82
Exports
-3,98
1,58
15,16
0,73
Imports
4,16
0,31
0,73
-0,67
Domestic
Activity
1,4
1,31
0,86
0,03
Domestic
Sales
4,04
1,13
-6,73
-0,35
 Drastic decrease of investment
 Export oriented industries
increase capital demand whereas
local oriented decrease
 Exports are increasing
 Domestic activity is increasing
 Domestic sales are decreasing
Main Result
% Changes from Base Year Levels
Impact on Factor Incomes /
Prices
LR
Productivity
+20%
SR
Productivity
+20%
LR
Cost 20%
SR
Cost 20%
Skilled
Labour
3,8
2,11 / 2,07
-3,49
2,60 /
2,53
Unskilled
Labour
3,53
2,28 / 2,29
-1,88
2,66 /
2,57
Rural
Capital
0,82
1,6
6,4
1,29
Urban
Capital
1,08
1,92
3,79
1,65
Agri
Capital
-0,51
0,01
7,9
0,28
Agri Land
-0,51
0,01
7,9
0,28
Rural
Land
1,08
1,64
3,18
1,36
Urban
Land
1,08
1,92
3,79
1,62
• In the long run, increased
productivity boosts labour
incomes, whereas in the
cost cut scenario labour
incomes are decreasing
• Both urban (more) and
rural capital incomes are
increasing
• Agricultural capital income
is decreasing when the
productivity of
transportation sector in
increasing, but clearly
increasing when
transportation cost are cut.
Main Result
% Changes from Base Year Levels
• Productivity + 20%
Consumer and Producer Prices
LR
Productivity
+20%
SR
Productivity
+20%
LR Cost
-20%
SR Cost
-20%
Consumer
Primary
0,5
0,08
2,45
0,13
Secondary
0,64
0,21
-1,35
0,02
Tertiary
0,09
-0,28
-1,2
-0,33
Primary
0,45
0,1
2,25
0,18
Secondary
2,95
0,33
-4,97
0,1
Tertiary
0,03
-0,41
-1,6
-0,47
Producer
 Consumer and Producer
prices are increasing in the
long run, especially of the
secondary sectors’ products
 Tertiary products’ prices are
decreasing in the short run
• Costs -20%
 Primary product prices are
increasing in the LR
 Secondary and tertiary
product prices are decreasing
in the LR
Conclusions
• Rural area is generally gaining in both of the
scenarios, but the results are not unambiguous,
rather mixed
• Activities concentrated on the local sales, and
export oriented activities are competing for the
resources in North Karelia
• Major part of the exports are of relatively low
degree of processing and value added
• Large part of capital income goes outside the
region
• Measures favoring export oriented sectors might
induce negative total GDP effect