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University of Kent
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Olim Latipov
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Finances & Economics
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Recent Evolution of Research into the Wider Economic Benefits of Transport Infrastructure Investments

The debate on whether there are wider economic benefits from transport infrastructure investments continues to cause debate and controversy. This debate occurs both between analysts seeking to find a robust method for identifying and measuring the size of such benefits and between policy makers seeking to justify or refute the need for a particular investment. It is timely to review progress on arriving at a consensus view of the contribution of infrastructure to the wider economy which is consistent with best practice in appraisal. This paper will review progress and try to bring out some common themes for discussion.

The main aim of this paper is to bring together the various alternative methodological approaches to this problem which differs not just in the detail of the analysis, but more significantly in the scale at which the analysis is undertaken. It is argued that it is of particular importance to understand the way in which changes in the provision of transport affect microeconomic decisions, including those within firms and households, and to understand the operation of markets as well as to model the resultant flows and their macroeconomic consequences.

By wider economic benefits we mean all economic benefits which are not captured in the direct user benefits of the type which are normally analysed in a well constructed transport cost-benefit analysis after allowing for environmental and other directly imposed external costs. Such benefits are typically thought of as being positive, but logically they can also be negative implying that the direct user net benefits could over-estimate the value of a project. The traditional transport appraisal approach assumes that a well-specified cost-benefit analysis will capture all the economic impact of a transport infrastructure investment since users will be willing to pay exactly the economic value of the transport to them. Any attempt to add on wider economic benefits would thus represent doublecounting. On the other hand macroeconomic studies have shown strong positive links between the aggregate level of infrastructure investment and economic performance as measured by GDP or productivity growth or employment. If it is the case that increased investment leads to faster growth then this needs to be identified and included in demand forecasts. Are these positions consistent, and if not can they be reconciled?

There are two main avenues of debate to effect such a reconciliation. One relates to the assumptions made about the nature of competition and returns to scale. This argues that when the traditional assumption of constant returns to scale in perfectly competitive markets is relaxed there will be agglomeration effects which generate wider benefits not captured in the user benefits. The second argues that the non-marginal nature of many large scale investments results in traditional forecasting approaches failing to capture the changes in behaviour of transport users.

The intention of this paper is to explore the linkages between these different approaches to identify the relationship between the different levels of analysis in order to develop a way towards a more synthetic approach which can capture best practice. However, it will be stressed that the purpose of any analysis always needs to be made clear in order to avoid inconsistencies between the appraisal of individual projects and overall evaluation of policy towards networks.

There will be a brief review of the objectives of infrastructure studies followed by a summary of the key issues which emerge from the various types of study in order to identify common themes and differences. This will lead to an attempt to synthesise the key issues and identify priorities for further work.