Research 350 - NZ Transport Agency

ECONOMIC DEVELOPMENT BENEFITS OF TRANSPORT INVESTMENT
• Land use changes (including product market (logistical adaptation, industry
agglomeration) property market (commercial and housing markets) and labour
market effects)
• Imperfect competition
• Taxation benefits
Arguments for and against these additional benefits are discussed in the course of a review
of SCBA in Section 2.3.
2.2.2 Input-Output analysis
An issue typically of interest to policymakers is how government (or private) consumption
expenditure spending on transport infrastructure and/or post construction benefits, such as
travel time savings and vehicle operating cost savings, (i.e. initial inputs) will ultimately
impact on growth, jobs and household income. One approach to answering this question is
to use input-output (I-O) analysis.
As Duncan (2001, p. 9) notes, impact analyses (such as I-O) typically start by identifying the
direct injection of funds or expenditures generated by a resource or activity (e.g. government
expenditure on transport in constructing infrastructure). Further expenditures generated
indirectly or induced elsewhere in the local economy are then estimated, as the recipients of
these funds use them in successive rounds of further spending.
I-O analysis (sometimes also referred to as ‘multiplier analysis’) makes use of statistical
tables (I-O transactions tables) to measure the relationship between industries in the
economy. I-O transactions tables indicate the sales from one industry to another and also
indicate the value of purchases of intermediate inputs, capital and labour each industry must
make in order to produce a product (CIE 1994, p. 3). Transport may be set out as a sector
(subdivided into several industries in some cases) (CIE 1994, pp. 5-6).
Technical coefficients (or ‘multipliers’) showing the relationships between different sectors,
suppliers and consumers in the economy are calculated using the I-O transactions table 2 :
Multipliers describe the indirect and induced effects (or flow-on effects – see below) on
outputs, income and employment and indicate the overall change in the level of activity that
results from an initial change in activity. Multipliers effectively ‘add up’ all of the successive
rounds of re-spending, assuming that major factors such as input prices are unchanged and
that there are no resource limitations. Using a simplistic example, assuming an initial
expansion of direct activity (e.g. expenditure) by $1 million and a multiplier of 1.1, the total
economic impact could be calculated as $1.1 million (Hone 2005, p. 5).
Multipliers typically used include the employment multiplier (measuring the change in
employment levels), the household income multiplier (measuring the change in household
Finally there is considerable uncertainty about the ‘correct’ social cost associated with the various taxes
used to fund government spending.
For these reasons many jurisdictions omit an allowance for the social cost of public funds from
estimations of project costs.
2 The process for doing so is somewhat technical and involves use of coefficients derived from an
analysis of the transactions table (‘the table of direct requirements coefficients’) and the inverse of an
identity matrix (‘the table of interdependence coefficients’).
20