Research 350 - NZ Transport Agency

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ECONOMIC DEVELOPMENT BENEFITS OF TRANSPORT INVESTMENT • Kamps (1984) suggests that the ‘supernormal’ returns to public capital cited by Aschauer may be a result of his use of the production function approach. Vector autoregressive (VAR) modelling may offer a superior approach to production function approaches as it allows for feedback effects between output (GDP) and inputs (higher public capital spending). Past VAR modelling cited by Kamps and his own work indicates a much weaker long run response to increases in public capital spending then that cited by Aschauer. • VAR work by Kamps (2004) for New Zealand and Australia (as part of a broader survey of OECD countries) is reproduced in Table 3.2 below. While Kamps found a positive long run elasticity of New Zealand real GDP with respect to public capital (0.11), based on a dataset covering 1960-2001, this result was not statistically significant at the 95% level, or even at the 68% level. Nor, in common with other OECD results, was there any evidence for positive New Zealand employment results. • Also reproduced in Table 3.2 below are findings of a variety of Australian studies of output elasticity of infrastructure investment. With the exception of Song’s work, these report much smaller elasticities then Aschauer’s findings. Table 3.1 Comparison of New Zealand and Australian evidence on responsiveness to public infrastructure investment Study Kamps (2004) Study Type and scope VAR model, 22 OECD countries including New Zealand Elasticity of variable with respect to public infrastructure investment GDP/output* Private capital Employment New Zealand Results 0.11 0.15 0.06 Australian Results Kamps (2004) VAR model, 22 OECD countries including New 0.29** 0.33** -0.24 Zealand Otto and Voss (1996) (cited by Econtech Australia 0.17 - - 2004) Pereira (2001) (cited by Econtech Australia 0.17 - - 2004) Kam (2001) Australia 0.10 - - Song (2002) Australia 0.27-0.39 - - NIEIR (2002) Production function, Australia 0.18 - - Econtech CGE model, (2004) Australia 0.13 - - * Specified as real GDP by Kamps ** 68% confidence interval does not cross zero (relevant to Kamps results only) 74
3. Role of transport investment in national/regional economic development Table 3.2 investment Comparison of US National and State-based studies on elasticity of GSP with respect to Elasticity of GDP/GSP with respect to investment Study Study Type and scope Highway Capital Human Capital Water and Sewer Other Public Capital Labour Private Capital Production Aschauer (1989) function, national level - - - 0.4 (a) - - Profit Deno (1988)* function; national 0.31 - 0.30 (s) 0.07 (w) - - - level Production Munnell (1990) function; 48 contiguous states 0.06 - 0.12 0.01 0.55 0.31 Garcia-Mila & McGuire (1992) Production function; 48 contiguous states 0.04 0.15 - - - 0.10 (ps) 0.37 (pce) Production McGuire (1992)** function; 48 contiguous 0.127 - 0.121- 0.043- 0.064 - - - states 2SLS spatial Haughwout (1996) equilibrium model; 48 contiguous states 0.08 - - - - - Source: Banister and Berechman 2000, pp. 148-149 Key: ps = Private structures pce = Private capital equipment a = <strong>Transport</strong>, energy and water s = Sewer capital w = Water capital * Result appears to refer to state level private profits rather than GSP ** Controlling for state-level effects Some context is also set by historical research. Banister and Berechman, cite Fogel’s famous (1964) study of US railway development in the 19th century. While railways had an important effect on US economic growth in the 19th century, such growth cannot be attributed to any single innovation. Rather, economic growth resulted from a variety of innovations, with rail 75
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modified CGE modelling. However, ad
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• Question 4.3: How are the other
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