Research 350 - NZ Transport Agency

ECONOMIC DEVELOPMENT BENEFITS OF TRANSPORT INVESTMENT
A range of monetised environmental values including Austroads’ recently developed
road user externalities for New Zealand are now available for analysts to use.
2.9.2 Role of I-O, CGE or other models
Given that SCBA is favoured as the default approach to national economic effects, is there a
case for the adoption of I-O and/or CGE modelling in estimating economic effects within a
New Zealand context? The answer to this question depends very much on the intention
behind the initial analysis.
As indicated above, if the aim is to assess efficient economic growth, then there is generally
little justification to supplement SCBA with other forms of modelling. If, however, the aim is
to understand ‘economic impacts’ such as effects on GDP, trade and employment or the
distribution of impacts across different New Zealand industry sectors then I-O and/or CGE
modelling could be employed.
If this is done however, it is advisable to do so as a complement to SCBA rather than as a
supplement. This is because such modelling, and the use of GDP as an indicator, will not
necessarily indicate whether such growth is efficient or not. As indicated above, use of I-O
and CGE modelling can indicate the benefits of investment but will not fully reflect the costs.
Further, other model outputs, such as employment growth, are based on highly questionable
assumptions when measured at a national level.
The use of such modelling, in isolation, will therefore provide an illusory guide to New
Zealand (or any other) policymakers. The economy may well grow, but through the use of
increased inputs to provide higher output, rather than through the more efficient use of
resources.
The case of the former command economies serves as one warning of the use of such an
approach. A transport infrastructure investment program which focuses solely on I-O and CGE
measures, without reference to SCBA modelling, could produce damaging long run economic
consequences (for New Zealand or any other jurisdiction). This is because other nations, with
more targeted investment approaches based on methodologies such as SCBA, could allow for
more efficient growth, i.e. produce the same output while consuming fewer inputs.
If one of these approaches is to be utilised then CGE would generally be favoured on a
national level, as it suffers from fewer constraints than I-O, in particular labour market
constraints. Regional specialists such as Madden have also favoured the use of CGE on a
national scale, suggesting that I-O analysis is better suited to analysis on a regional level
(Madden 2000, cited in Klienhardt 2002).
The outputs of CGE and I-O modelling should not be added to SCBA, as done by ACG’s (2004)
review investment in New Zealand’s road infrastructure. This produces a substantial risk of
double counting. It is of particular concern that this process produced a result in which
several projects which failed to meet Transfund hurdle rate (i.e. BCR = 4.0) using only a
conventional SCBA, could now exceed it.
An overriding issue, however, is that of resources. As noted above, the UK Government
response to SACTRA’s recommendation for the further development of CGE modelling, the
resource required to maintain a CGE model are considerable. It remains a policy decision as
to whether the need to obtain such outputs, with the above caveats attached, is worth the
costs involved. This is a particular issue within small jurisdictions such as New Zealand.
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