Transcript Can HSR rebalance regional economies?

The UK’s European university
Wider economic
impacts – Can HSR
rebalance regional
economies?
Prague Conference on High-Speed Rail
Roger Vickerman
Introduction and motivation
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High-speed rail is claimed to have a transformative effect
on local economies.
Better connectivity and lower transport costs lead to
enhanced growth and productivity.
But are such effects just redistributive: some regions
benefit whilst others suffer
Here we examine the claim that step changes in
transport provision can lead to major changes in
economic structure that can transform regions’ absolute
as well as relative positions
Such claims of economic transformation have been
made for HS2 in the UK
We look at the theory behind this, at evidence from
France and HS1 in Kent
The main conclusion that transport infrastructure by itself
is not likely to be transformative, but coupled with other
policy interventions it can contribute to such an effect
Can HSR rebalance regional economies?, Prague June 2016
Transport and the economy
multiple nature of transport
• The
• Transport as a derived demand
• Transport as a substitutable input
• Transport as an engine of growth
role of accessibility and speed
• The
• Accessibility: distance, speed and frequency
• External accessibility and the ‘two-way’ road
• Internal accessibility and efficiency
the cost of transport and
• Accessibility,
economic growth
• If transport costs are reduced industries become
more competitive
• Improved transport contributes to productivity
growth.
• Changes in the location of activities
• Employment growth
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Can HSR rebalance regional economies?, Prague June 2016
The agglomeration issue
accessibility to agglomeration
• From
• Transport costs as determinant of the price
of an urban location
• And hence of the real wage
• Thus going beyond the simple value of time
savings as a transport benefit
theoretical basis of agglomeration
• The
• Increasing returns, transport costs and
market size
• Linkages in the local economy
• The role of real wages in cumulative
causation
• Labour market impacts
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Can HSR rebalance regional economies?, Prague June 2016
CBA: the standard approach
Generalised
Cost
C
C’
D
Q
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Can HSR rebalance regional economies?, Prague June 2016
Q’
Volume
CBA: the standard approach
what are the assumptions lying behind this?
• But• Perfect
competition so that p=mc
• No externalities so that mc=smc
• No returns to scale so mc constant
• Demand is only responsive to a change in price, not a
change in supply (i.e. a fixed trip matrix)
we change these assumptions
• Suppose
• mc is upward sloping and smc>mc
• But with increasing returns mc could slope down
• p≠mc
• And D could shift outwards in response to changing
opportunities
• But suppose that agglomeration also caused mc to
shift downwards
• Is the outcome now so determinate?
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Can HSR rebalance regional economies?, Prague June 2016
A theoretical model of labour market
benefits from transport improvement
Costs/
Benefits
B1
B0
C0
C1
W
δd
ß
β
a
α
γ ?
L0
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Source: Venables (2004)
Can HSR rebalance regional economies?, Prague June 2016
L1'
L1
City size
How do we measure these effects?
• Methodology well developed for urban
applications: Wider Economic Impacts (WEI)
• Based on impacts on labour markets of improved
accessibility
• Effective density, agglomeration and productivity
• The Crossrail example
• Less well developed for inter-urban
applications
• Can we apply the labour markets approach?
• Is there something else?
• Concern about centralisation – do all the
benefits go to the biggest city?
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Can HSR rebalance regional economies?, Prague June 2016
Measuring wider impacts
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Labour supply and productivity
Output change in imperfectly competitive
markets
Agglomeration – effective density, economic
mass and productivity
Can HSR rebalance regional economies?, Prague June 2016
From economic mass to connectivity
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Economic mass relies on continuous measures of
distance/time
HSR is not continuous: differential impacts on
regions and within regions
Need to understand how changes from HSR affects
the way businesses connect with each other and
with labour markets
Affects the core question of whether HSR is
centralising or decentralising
Arguments can be made for either outcome, but
critically depends on behavioural responses of firms
and households
Is impact best measured through GDP/GVA or
structural change – of industries or occupations and
skills?
Can HSR rebalance regional economies?, Prague June 2016
HS2 Network
London-Birmingham 140miles (225km)
Birmingham-Manchester 95miles (150km)
Birmingham-Leeds 116miles (185km)
Time saving from London:
Birmingham 84 to 49min
Manchester 128 to 68min
Leeds 132 to 82 min
Time saving from Birmingham:
Manchester 88 to 41min
Leeds 118 to 57min
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Can HSR rebalance regional economies?, Prague June 2016
Basic economic case for HS2
• Direct user benefits estimated sufficient to
give positive BCR
• Conventional wider impacts add to this, but
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relatively smaller than in an urban situation
like Crossrail
BCR greater for full network
Have all the impacts been captured?
Impacts on regional balance of national
economy
End points versus intermediate stations
Can HSR rebalance regional economies?, Prague June 2016
Standard case CBA analysis (2011 pres. values)
Source: HS2: The Economic case for HS2, 2013
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Can HSR rebalance regional economies?, Prague June 2016
Sources of benefits
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Can HSR rebalance regional economies?, Prague June 2016
Concerns in the basic economic case
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Value of business travel time savings
Impacts on behaviour
Price and congestion effects
Have we captured all the longer-term impacts
allowing for relocation and agglomeration
effects?
New (but controversial) approaches based on
labour market and business connectivity
suggest greater regional and national impacts
Can HSR rebalance regional economies?, Prague June 2016
GDP Impact of connectivity
Maximum estimated impacts
Source: HS2: Regional Economic Impact, 2013
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Can HSR rebalance regional economies?, Prague June 2016
business location. These productivity gains - estimated to be worth between £7.0
billion and £5.0 billion per year - are largely brought about by the use of freed-up
capacity, which results in widespread improvements to rail services on the classic
network, particularly on long-distance routes.
Regional distribution of estimated gains
Table 10: Estimated changes in economic output by city region in 2037 after investment in HS2 (2013 prices)
GDP impact per year*
‘Low’ business
‘High’ business
location scenario
£1.3 billion
location scenario
£0.6 billion
£1.0 billion
£1.0 billion
£0.5 billion
£0.9 billion
£1.1 billion
£2.2 billion
£1.5 billion
£3.1 billion
£2.8 billion
£2.5 billion
Rest of Great Britain
£7.0 billion
£5.0 billion
Total impact for GB economy
£15 billion
£15 billion
Greater Manchester
(Bolton, Bury, Manchester, Oldham,
Rochdale, Salford, Stockport, Tameside,
Trafford and Wigan)
West Yorkshire
(Bradford, Calderdale, Kirklees, Leeds,
Wakefield)
South Yorkshire
(Barnsley, Doncaster, Rotherham,
Sheffield)
Derby-Nottingham
(City of Derby, City of Nottingham, eight
Derbyshire districts, seven
Nottinghamshire districts)
West Midlands metropolitan area
(Birmingham, Coventry, Dudley,
Sandwell, Solihull, Walsall and
Wolverhampton)
Greater London
(33 London Boroughs)
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*Note: totals may not Source:
sum due toHS2:
Also noteEconomic
that under a 'low'
and 'high'
business location scenario, the estimated impact for West
Regional
Impact,
2013
Can HSR rebalance regional economies?,
Prague June
2016 rounding.
Yorkshire remains at £1 billion per year.
HS2 Regional Economic Impact | Results
Figure 15: Potential distribution of economic output in 2037 after investment in HS238
Redistribution of economic output in 2037
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Positive values
Positive values
Negative values
Negative values
Source:
Can HSR rebalance regional economies?, Prague June
2016 HS2: Regional Economic Impact, 2013
Can these gains be realised?
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Evidence suggests such gains are not
automatic from high-speed rail
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Service levels
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Accompanying policies
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Some evidence from Kent
• Frequency of service – problems for intermediate
stations
• Pricing policies – use of yield management?
• Advance reservation?
• Transport links
• Land-use and urban planning
• Station development
Can HSR rebalance regional economies?, Prague June 2016
The French case
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Integrated network with use of existing stations
and regional services off HSR network
Early success with TGV Sud-Est, later lines
increasingly less profitable
Clear reference to regional development in
Schéma Directeur
Mixed success of intermediate stations
depending on supporting policies
Importance of integration in larger cities (e.g.
Lyon, Lille)
Can HSR rebalance regional economies?, Prague June 2016
French evidence – variations between
predicted and observed traffic
Source: J. P. Taroux (op. cit.).
The discrepancies between ex ante and ex post rates of return are often linked to a
lower-than-predicted level of traffic, as shown in Figure 6. Certain lines have experienced
significantly lower-than-predicted traffic, both on entry into service (MES) and in full
operational mode (croisière), as much as -50% in full operational mode for the TGV Nord
and -35% for the Sud-Est/Nord link situated to the east of Paris.
Figure 6 Variations between predicted and observed traffic
(On entry into service)
(In full operation)
Note : Interconex IdF = Île de France inter-connection
Source: J. P. Taroux (op. cit.)
It is also necessary to take into account the fact that the cost of works has sometimes
slipped as shown in Figure 7. Several lines have exceeded forecasts by 15% to 25%, and
this has affected the rate of return.
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Can HSR rebalance regional economies?, Prague June 2016
French evidence – a success story, Valence
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Can HSR rebalance regional economies?, Prague June 2016
French evidence – an isolated station, TGV
Haute Picardie
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Can HSR rebalance regional economies?, Prague June 2016
French evidence – an integrated periurban
station, Champagne Ardennes
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Can HSR rebalance regional economies?, Prague June 2016
French evidence - some conclusions
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Existing stations
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New stations
• Reinforce connections with the classic rail network
and urban public transport
• Remodel the interiors and exteriors of stations
• Develop public transport access at stations
• Provide adequate services at stations
• Develop a human presence at stations
• Need for connection with the classic rail network
• Preference for central locations over peripheral ones
• Integration between local networks and the HSR
network – HSR stations are not airports but an
integral part of the regional transport network
Can HSR rebalance regional economies?, Prague June 2016
Changes in specialisation index in NW Europe
Core cities
Hinterlands
Krugman Specialisation Index
Source: Cheng, Loo and Vickerman, 2015
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Can HSR rebalance regional economies?, Prague June 2016
Impact of HS1 on Kent
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Mix of international and regional services
Similar levels of traffic (ca.10mn) on each
Lack of coordinated development around Kent
stations – compare Stratford
Problems of ex post analysis
• GVA at local level
• Changes in skill base
Economic development impact limited –
commuting rather than inward investment
HS1 not transforming at regional level, but clear
local impacts
Can HSR rebalance regional economies?, Prague June 2016
HS1 in Kent
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Can HSR rebalance regional economies?, Prague June 2016
HS1 evidence – Domestic traffic
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Can HSR rebalance regional economies?, Prague June 2016
Changes in GVA, 1998=100
Source: Kent County Council
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Can HSR rebalance regional economies?, Prague June 2016
Employment in the knowledge economy
Source: Kent County Council
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Can HSR rebalance regional economies?, Prague June 2016
Issues raised
• Forecasting long-distance trip making over long periods
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• Assumptions about economic growth
• Assumptions about business travel behaviour
• Assumptions about non-business travel behaviour
Values of in-vehicle time savings – is business travel
over-valued?
Assumptions on fare structures and price elasticities
Have we got the wider benefits right?
• Is agglomeration different in an inter-urban context?
• Effects of connecting cities
• Skill specialisation
Does the UK over-analyse – paralysis by analysis?
• Allowing for optimism bias
• How much risk should be left in?
Can HSR rebalance regional economies?, Prague June 2016
Concluding thoughts
• Realities and perception in the investment
for growth argument
• So can transport rebalance the economy?
• But can the economy be rebalanced without
investment in transport?
are the outstanding issues?
• What
• Accessibility and connectivity
• Cities versus wider regions
• How do we compare local/regional
improvements with major national multibillion investments?
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Can HSR rebalance regional economies?, Prague June 2016
THE UK’S
EUROPEAN
UNIVERSITY
Thank you
www.kent.ac.uk