Research 350 - NZ Transport Agency

ECONOMIC DEVELOPMENT BENEFITS OF TRANSPORT INVESTMENT
cases, I-O modelling indicates that the induced consumption effects actually generate much
more indirect employment then the original transport infrastructure project’s requirement for
workers – though problems with this outcome are noted below (BTE 1999, pp. 50-51).
To give another example, Allen Consulting Group (ACG) used the reduction in vehicle
operating costs, accident costs and increased labour efficiency (the latter as a proxy for
reduced travel times) as ‘negative shocks’ to estimate the flow-on effects of the operational
phase of a proposed New Zealand road investment program. The flow-on effects of these
negative shocks were estimated (using multipliers) as a proxy for the value of liberated
resources which could be used elsewhere in the economy. To do this, ACG imposed output
shocks on the petroleum, rubber, retail trade and health industries (to capture the impacts of
changes in vehicle operating costs and accident costs) and on all industries (to capture the
changes in productivity arising from reduced travel times). This produced (raw) changes in
regional GDP for Auckland, the Bay of Plenty and Wellington (ACG 2004, pp. 69-70).
The major outputs of I-O analysis are typically changes in GDP (or GSP or regional output
equivalent), employment and household income. The framework of linkages used in I-O
models can in turn, be used to develop CGE and Land Use Transport Interface (LUTI) models.
It is important to draw a distinction between outputs from I-O modelling and those from
SCBA. I-O modelling measures economic impacts rather than economic efficiency or net
benefits (as measured by SCBA). That is, unlike SCBA it takes no account of the opportunity
costs in terms of land, labour and capital involved in undertaking a given project. Therefore
project outputs measured by I-O analysis will generally be ‘positive’ (i.e. increased
employment, GDP, household income), regardless of the type of project undertaken. In
contrast, SCBA allows for opportunity costs and results may be ‘positive’ or ‘negative’ (i.e. a
positive or negative project NPV) depending on the comparison of opportunity costs and
project benefits. Thus it is entirely possible for I-O analysis to demonstrate positive
employment and GDP, while an equivalent SCBA would find a negative project NPV (and a BCR
below 1.0).
Results for I-O models are typically reported for given years in the project construction period
and the project operational period. While in theory, project impacts such as higher GDP could
be summed across the project lifespan, and a NPV estimated (as is typically performed for
SCBA) this runs the risk of ignoring changes in the multipliers over time and may distort final
results.
2.3 General Equilibrium (CGE) modelling
One method of dealing with the problem of constraints, faced in I-O analysis, is to use
General Equilibrium modelling. (also known as Computable General Equilibrium (CGE) or
‘national economic modelling’) 4 .
Like I-O analysis, CGE models essentially represent a macro-economic approach to analysing
transport infrastructure. CGE models often draw on I-O models for their basic framework. In
fact, CGE models are built on top of an I-O framework, and to this extent, share similar
inputs.
However, CGE models typically employ econometrics to allow for the constraints on
consumption and government spending that are absent in I-O analysis. They are therefore
4 Much of this discussion is drawn from Dwyer, Forsyth, Spurr & Ho 2004, p. 9.
22