Research 350 - NZ Transport Agency

ECONOMIC DEVELOPMENT BENEFITS OF TRANSPORT INVESTMENT
SCBA provides for a measure of the net economic benefits associated with a given project, i.e.
benefits (the sum of producer and consumer surpluses) are netted off against social
opportunity costs (e.g. construction costs, operational costs) to produce a project NPV (and,
by derivation, a BCR). Ultimately, this activity could be expected to affect GDP, though such
effects are not an output of SCBA.
However I-O analysis (and for that matter CGE analysis) does not present a similar measure of
net economic ‘benefits’. Rather, it produces the macroeconomic variables noted above (i.e.
GDP/GSP, employment and income). These are not comparable to the welfare (i.e. economic
efficiency) benefits recorded by SCBA, This is because, unlike SCBA, I-O analysis generally
provides no allowance for the full opportunity costs to society of using labour and capital for
the project rather than for some other purpose.
In other words, the broad gross macroeconomic ‘benefits’ of the given project are allowed for
by I-O analysis (e.g. higher GDP). However, unlike SCBA, the full costs (i.e. the diversion of
labour and capital away from their alternative uses) are not.
Put another way, (and as noted above) SCBA stresses the need to maximise economic
efficiency (through provision of project NPV and BCR). I-O analysis focuses on measuring
broader economic impacts (e.g. outputs, income, employment). SCBA focuses on the primary
benefits (or the value to consumer of using a facility or resource) while impact analyses such
as I-O analysis focus on secondary effects accruing to the producers of inputs to the
production process, in the shape of labour, goods or services.
SCBA emphasises consumer willingness to pay for goods and services and on the related
concept of consumer and producer surplus. A key question is whether the community would
be better-off in adopting a given policy measure then it would be otherwise, using monetary
values as a measure of utility.
In contrast, I-O analysis traces the flow of funds from market transactions and emphasises
the distribution of expenditures derived from a resource, rather than its value to the
community. Thus, as Duncan (2001) notes, in assessing the development of a new tourist
attraction, funded by ratepayers, SCBA would ask the following:
• What are the benefits to taxpayers of the amenity, relative to the costs incurred?
• How much would they be willing to pay or forgo for access to the amenity?
• How does the amount they are willing to pay compare with the costs incurred?
I-O analysis would focus on how much additional spending, employment and output occurs in
the economy and in what sectors, and how would these flow through to other sectors.
Duncan (2001) also points out that ranking alternative projects with impact analysis is
problematic, as results tend to be in dollar (i.e. output or turnover) terms which have a broad
rather than a specific relationship to opportunity costs of inputs.
A further issue, worthy of note, relates to scope. I-O analysis (and CGE analysis) exclude the
impact of some ‘non-market’ factors not measured in National Accounts data which are
allowed for in a typical SCBA for a transport project. These include non-work travel time
savings (to the extent that these are incorporated into increased leisure time), some accident
cost savings (such as lives lost and permanent disability avoided) and environmental
externalities (to the extent these are allowed for in monetary terms within the SCBA).
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