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The wider economic benefits of transport. Kurt Van Dender 9 March 2011 Infrastruktur som vækstdriver for Danmark. The International Transport Forum at the OECD. www.internationaltransportforum.org Annual Summit: Leipzig 25-27 May, Transport for Society Think tank IGO.
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The wider economic benefits of transport Kurt Van Dender 9 March 2011 Infrastruktursomvækstdriver for Danmark
The International Transport Forum at the OECD www.internationaltransportforum.org • Annual Summit: Leipzig 25-27 May, Transport for Society • Think tank • IGO.
Wider economic benefits of transport (infrastructure) • Transport and growth • The social benefits of transport • The role of economic appraisal • The scope of cost-benefit analysis • - wider benefits • 5. Summing up
1. Transport and growth • Is transport a driver for economic growth? • Do infrastructure investments boost its contribution?
1. Transport and growth • Is transport a driver for economic growth? • Do infrastructure investments boost its contribution? • ...it depends!
1. Transport and growth • Is transport a driver for economic growth? • Do infrastructure investments boost its contribution? • ...somewhat more precisely: • It can be a prerequisite for realising an existing potential. • It does not in itself constitute or create such potential.
1. Transport and growth • “It can be a prerequisite for realising an existing potential.” • When is that likely? • New networks, new modes or technologies. • Eliminating constraints in high-growth places • (metropolitan areas; Crossrail, Métro Grand Paris). • (diminishing marginal returns)
New networks, new modes or technologies: Social savings from railway freight England and Wales (1865): 4.1% of GNP Brazil (1913): 18.1% of GNP Difference: improvement over waterways vs. new connections Source: Leunig, 2011
Crossrail Ca. 15bn pounds Set of tunnels connecting Great Western and Great Eastern Main Lines 2018 Network Rail, BAA, City of London, DfT, TfL (EIB)
Métro Grand Paris • 155km of track • 40 stations • 20-25bn € • Done by 2023
2. The social benefits of transport • Transport is not just about growth. Other benefits: • Time savings used to enjoy leisure. • Reducing environmental impacts. • ...appraisal aims to include all benefits
3. The role of economic appraisal • What infrastructure to build, and when? No hard and fast rules. • Appraisal provides a systematic analysis of costs and benefits to inform (not: to make) decisions. • Appraisal leads to better decisions and more credibility. • Cost-benefit analysis is an often used form of appraisal.
4. The scope of cost-benefit analysis • Standard CBA focuses on direct user benefits – what are users willing to pay for better infrastructure? • Note: willing to pay, not have to pay; time savings important. • Are direct user benefits the same as total benefits? • Yes, if perfect competition and constant returns to scale.
4. The scope of cost-benefit analysis • Standard CBA focuses on direct user benefits – what are users willing to pay for better infrastructure? • Note: willing to pay not have to pay; time savings important. • Are direct user benefits the same as total benefits? • Yes, if perfect competition and constant returns to scale. • ... in other words, no.
4. The scope of cost-benefit analysis • Standard CBA gives an approximation to total benefits. • Sometimes the approximation is good. • Sometimes it needs to be amended to take account of wider economic effects / wider economic benefits.
4. The scope of cost-benefit analysis • What wider economic benefits? • ... many are related to the arguments on transport and economic growth (productivity) made before: • Increased competition in good markets (“unlocking”), • Increased size of labour markets leading to lower wages, • Agglomeration economies.
4. The scope of cost-benefit analysis • Agglomeration economies: • A form of economies of scale external to firms, so not included in standard CBA. • Increased access to economic mass boosts productivity through better matching, sharing, and learning.
4. The scope of cost-benefit analysis • Agglomeration economies: • Empirical estimates of 10 to 20% “extra” benefits. • Suggests bigger benefits in metropolitan areas (high growth areas constrained by transport infrastructure used at capacity; cf. e.g. the Eddington study).
4. The scope of cost-benefit analysis • But doubts regarding the direct relevance of the empirical work are emerging. • No rules of thumb. • Strong case for customised research, in particular for major projects in metropolitan areas.
5. Summing up • Transport infrastructure can be key to unlocking growth potential. • It is not in itself a source of growth. • There are other benefits than growth. • Systematic appraisal improves decisions. • Wider economic benefits sometimes need to be considered but should not be taken for granted.