Research 350 - NZ Transport Agency

APPENDIX I
Appendix I: Predicting the Impacts of Road
Investment on Gross State
Product and Employment
(George Docwra and Guy West, Contributed paper presented at
23rd Australasian Transport Research Forum, Perth, Australia,
Sept-Oct 1999)
AI.1
Synopsis
As its name suggests, the focus of this paper is on examining the utility of various
approaches to measuring the impacts of road projects on regional output and employment.
The authors view SCBA as useful, but also see it as providing limited guidance due to the fact
that policymakers often wish to have a wider test of ‘public benefit’ than the economic
efficiency impacts captured by SCBA (i.e. one including measures of regional employment,
output and income). As such, they see Input-Output (I-O) and/or General Equilibrium (CGE)
modelling as complementing the results of SCBA. They indicate that applying a model which
provides knowledge of employment and Gross State Product (GSP) outcomes may be useful
for a variety of reasons, including:
• It may assist in obtaining funding allocations.
• There may be conflict between the results of SCBA and employment implications of a
given project. For example, projects with low benefit-cost ratios could generate high
levels of employment. Using SCBA in conjunction with other models can help decisionmakers
identify when choices need to be made between conflicting policy goals.
• Various projects may have different impacts on regional development. These may not
match differences in benefit-cost ratios.
The authors compare what they term the Applied General Equilibrium (ACGE) and inputoutput
econometric (IOEC) models. The second of these appears to combine standard I-O
modelling with some additional econometric data. In general, the IOEC model is preferred to
the ACGE approach for regional analysis. This relates to the authors’ specification of the
properties which an ‘ideal regional model’ for road investment should possess. These
include:
• Use of a bottom-up modelling approach.
• Comprehensive supply-side specification supplemented by data on capacity limits and
endogenised prices.
• Integration with the national economy, allowing for feed back interactions to measure
both region-specific and national policy impacts at the regional level. This would
include an inter-regional model to allow for flow-on effects to surrounding regions.
• A fully comprehensive labour market sub-model, allowing for differential skills, labour
mobility and turnover.
The authors also note that only IOEC modelling can adequately cater for the short run
dynamics of road investment programs. In addition, the lack of dynamics in ACGE models
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