Research 350 - NZ Transport Agency

ECONOMIC DEVELOPMENT BENEFITS OF TRANSPORT INVESTMENT
are logistics benefits and agglomeration benefits – these are addressed in more detail in
following sections.
Responses
Two responses are made regarding the claimed inadequacies of the partial equilibrium
approach inherent to SCBA. Firstly, BTE notes that all economic models, including so-called
‘general equilibrium’ models, hold some elements of the economy fixed (i.e. exogenous). BTE
suggests that rather than labelling SCBA as partial or general equilibrium it is more useful to
attempt to identify the sources of exogeneity (BTE 1999, p. 107).
In doing so, BTE notes that soundly applied SCBA takes account of indirect effects of projects
to the extent that estimates of induced/diverted demand are accurately estimated because
flow-on responses to new transport improvements such as changes in inventory and
warehousing arrangements, regional development benefits and improved access to labour
supply that eventually are eventually reflected in changes in traffic movement (BTE 1999, pp.
13-17, 110, 154, 158, 164, 181).
For example when farmers expand production in response to a new road link the induced
freight traffic (i.e. higher trip numbers) reflects the increase in farm profits (producer surplus)
plus benefits and costs to other parties such as consumers. Or, put another way, the
expansion in production depends on the increased use of transport. This, in turn, reflects
how much people are willing to pay for the extra transport – which, in turn, is revealed by a
transport demand curve including allowance for induced demand (BTE 1999, pp. 11-26) 7 .
Thus, the measurement of ‘transport benefits’ by SCBA (though the use of transport demand
curves alone) may effectively allow for broader economic benefits, particularly if induced
demand is allowed for. Conversely ‘adding on’ benefits such as improved productivity and
higher land prices to travel time and vehicle savings would constitute double counting. To its
supporters, SCBA therefore represents a powerful and cost-effective tool for measuring
economic benefits.
Even so, to the extent that induced traffic responses to projects are modest in developed
nations such flow-on benefits must also be modest. For example BTE (1999, pp. 16-17)
reports a cost elasticity of demand for car travel on rural Australian roads of -1.08.
2.5.2.2 Logistics benefits
Issues
A common argument made in the case of road infrastructure is that, apart from improving
travel times and vehicle operating costs, a relevant transport investment may also ultimately
result in an entirely new set of logistical arrangements through warehouse consolidation, the
use of ‘just in time’ production methods, improved fleet and driver utilisation better
inventory arrangements and the connection of two disjoint networks by a new link, thereby
opening up for trade previously non-trading markets (Kinhill Economics 1994, p. 13; BTE
7 Of course, it is noted that induced demand is not allowed for within the ‘limited SCBA’ defined above.
This is an issue which is explored further below. The most salient point however, is whether allowing for
induced demand alone is sufficient to capture other ‘flow –on’ economic effects. Many critics argue that
it is not (or ignore the issue) Others, such as BTE maintain that allowance for induced and diverted
demand alone is sufficient to capture most of the material indirect (or transmitted) benefits.
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