Research 350 - NZ Transport Agency

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ECONOMIC DEVELOPMENT BENEFITS OF TRANSPORT INVESTMENT 2.5.2.7 Regional benefits Issues SCBA has occasionally been criticized for ignoring or understating the ‘additional’ regional benefits which flow from improvements (BTE 1999, p. 143). Local business expansion, and tourism development are the more frequently cited omitted benefits. Some analysts such as Seskin have claimed that regional economic benefits may be 50-150% greater than the traditionally measured ‘road user’ benefits (BTE 1999, p. 157). This issue is also related to that of agglomeration economies, noted above. For example, the work of Rye, Ohr and Lyche (2001) suggests that impacts of a higher willingness to pay for labour will be reflected in higher regional wages and therefore should be allowed for in assessing the value of travel time savings. SACTRA has also touched on this issue when considering the broader issue of linkages in a spatial economy and assessing the effects of agglomeration (SACTRA 1999, Chapter 5). However, much of the discussion focuses on measuring the regional distribution of economic benefits from SCBA rather than finding convincing evidence of the omission of economic benefits from regional SCBA studies. The most appropriate approach to regional distribution issues and regional benefits is further examined below. Responses Two matters seem to underlie the concern with regional economic benefits. The first relates to benefits that may not be fully taken into account in SCBA, whilst the second interest is the distribution of benefits between geographic locations. The issue of regional benefits is closely related to questions of project scope and definition. Leaving aside issues discussed in previous sections, other claimed ‘omitted benefits’ of regional development appear to stem from confusion over these issues. However, as discussed below, such critiques may run a serious risk of double-counting so called ‘road user benefits’ (as these are passed on through the regional, and global, economies) and of confusing the scope of the relevant SCBA (BTE 1999, pp. 151-160). The population over which benefits and costs are measured is sometimes referred to as ‘the population of standing’ (BTE 1999, p. 149). In New Zealand and Australia transport-related projects generally purport to measure benefits to the ‘global’ populations. That is, no specific bounds (or ‘ringfences’) are set as to the population of standing (though in reality the majority of effects are typically localised). Thus, (without ringfencing) ‘regional development benefits’ are typically subsumed within the global measures adopted by SCBA. In many cases this distinction is blurred by studies which claim ‘additional’ regional benefits. BTE provide the example of a Wisconsin highway study which appeared to refer to the original State population as the population of standing but added in benefits enjoyed by inmigrants and highway users from outside the State to those enjoyed by the original state population. In another case, a Texas highway study added improved local land values to savings in transport costs – a clear example of double counting (BTE 1999, pp. 152-154). In contrast, Brown, Copeland & Company Limited (2004) are cautious in their examination of additional regional benefits for Wellington as a result of the Transmission Gully project. There is a recognition that allowance for additional economic activity in Wellington resulting 40
2. APPROACHES TO ASSESSING NATIONAL ECONOMIC BENEFITS from the project would likely be at the expense of other regions (rather than constitute a clear cut ‘additional’ benefit and that adding on increased output to traditional transport cost savings could constitute double counting (Brown, Copeland & Company Limited 2004, pp. 17- 18). BTE (again) argues that, allowance for induced traffic impacts will capture many regional development benefits, providing the example of the road improvement which stimulates local wheat production and creates more grain traffic (BTE 1999, p. 154). Thus ‘adding on’ the increased local farm output is double counting – not an additional regional benefit. A further issue is structural. New Zealand and Australia already have relatively well developed transport links. Thus, the extent to which a given transport improvement could be said to ‘open up’ an area, stimulate rural/regional production and produce significant local benefits, as is often claimed, is limited. In addition, as transport costs are often not large in relation to total production costs or revenues, the extent to which an improvement in links to rural/regional areas will stimulate further production is typically small (BTE 1999, pp. 144- 149). In reality, transport SCBAs will miss some impacts. BTE provides the example of services relocating to a nearby highway service centre as a result of a town bypass. Even if this occurs within a ‘ringfenced’ study area, SCBA may miss some costs such as the opportunity cost of (now vacant) town service facilities and residential re-location costs. However, these would appear to be modest and the ‘errors’ in SCBA could go either way, (BTE 1999, pp. 154-156). SACTRA also make the point that it can be difficult to predict outcomes at a regional level (SACTRA 1999, Summary Report, para. 40). More generally, SACTRA find that ‘there is no guarantee that transport improvements will benefit the local or regional economy at only one end of the route - roads operate in two directions…assessment of whether economic benefits will actually benefit the intended target area will need to consider impacts outside the immediate neighbourhood’ (SACTRA 1999, Summary Report para 40). Likewise ‘there is no simple rule which can be applied to predict the regional outcomes of transport projects, the outcome will depend on a particular set of regional and sectoral circumstances’ (SACTRA 1999, para. 5.97). 2.5.3 Conclusion It is concluded that caution must generally be used when reviewing the context of claimed ‘positive externalities’. In some cases these may be a measurement issue rather than evidence of a new class of benefits. For example, as noted above, Brown, Copeland & Company Limited (2004) argue that reductions in ‘abnormal delays’ in the Wellington region constitute an additional benefit of the Transmission Gully project. It is not completely clear why such delays would not be incorporated within existing traffic data. However, it may be due to the way in which local traffic sampling and modelling is undertaken. If so, the claim for additional benefits, while legitimate, is more a measurement issue than an argument for a new class of benefits. Further, to the extent that such delays are, indeed, abnormal, the materiality of such impacts is open to question. 41
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