Research 350 - NZ Transport Agency

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ECONOMIC DEVELOPMENT BENEFITS OF TRANSPORT INVESTMENT Alternatively, it may be the case that some residents of Region A migrate to Region B due to a combination of job opportunities, lower costs of relocation and the increased ease of return visits to visit friends and family. Migration to region B could reduce unemployment problems (and increase wages in Region A), though wages in region B may fall, however it might also reduce Region A’s resident population. Whether a falling population is seen as a positive (or intended) outcome of regional development policy is open to debate; though this is an issue which is generally outside the sphere of ‘economic impacts’. The issues raised by SACTRA and ECTM, along with the cases raised immediately above, may help to explain the ambiguous results of the studies quoted above. While noting the practical and theoretical issues described above, is it possible to describe any broad typology of conditions under which improved transport links will benefit the target regions and when will jobs and investment flow outwards? SACTRA suggest six key issues in assessing the regional impacts of transport development: • Scale economics (e.g. where these dominate, lower transport costs thorough improved accessibility may encourage an increased concentration of firms in core regions until the point that diseconomies set in). • Size of the local market. • Local land and labour conditions. • The nature of backward and forward linkages in the local economy. • The nature and scale of transport improvements. However, SACTRA also notes that the interplay of these factors is ‘indeterminate’ – i.e. it is impossible to predict outcomes using theory alone (SACTRA 1999, paras. 5.85-5.86). SACTRA (paras. 5.92-5.96) also refers to Venables and Gasiorek’s (1998) model of typical regional impacts following a transport improvement. This model was developed in Venables and Gasiorek’s report to SACTRA The Welfare Implications of <strong>Transport</strong> Improvements in the Presence of Market Failure (1998). The model assumes an economy comprised of 2-3 regions, each of which has two transport-using sectors, one of which displays imperfect competition, the other perfect competition. Labour markets are assumed to be perfectly competitive in all regions. Their typology is described below: • The centre periphery case – Considers the impacts of a transport improvement between a large central region, which enjoys high levels of activity and scale economies, and a smaller peripheral one. <strong>Transport</strong> improvements tend to reduce output and wage differentials between the regions (except in cases of very high initial transport costs, which would be unlikely in a developed New Zealand context). Welfare gains tend to be proportionately larger for the smaller region. • The production diversion case – Examines the case of three initially identical regions in which there is a transport improvement between any two but not the third. Assuming the same initial levels of wages and output, activity becomes concentrated in the two benefitting regions at the expense of the third, with significant wage differentials opening up in relation to the third region. The welfare gains in the two linked regions outweigh the smaller welfare losses in the third, resulting in net welfare benefits. 86
4. APPROACHES TO ASSESSING REGIONAL ECONOMIC AND OTHER DISTRIBUTIONAL EFFECTS • The three region periphery case – Considers the case where three regions lie along one corridor. An improvement takes place between the central region and one of the peripheral regions but not the centre and third one. The central region is assumed to have a greater share of regional production and higher wages due to its locational advantages. The transport improvement shifts production to the peripheral region enjoying the improved link (and increase regional wages) at the expense of the other peripheral region. There is little effect on the central region. However all regions make a welfare gain. This is largest in the peripheral region enjoying the improved link, however, the other peripheral region also benefits from network effects. • The three region network case – Is similar to the three region periphery case but assumes links between the centre and both regions are improved. Here both peripheral regions gain at the expense of the centre region. The overall improvement in welfare is greater than the sum of the improvements associated with each link independently as the total market has been enlarged. While this typology may offer some broad guidance, SACTRA do not provide any clear empirical evidence in support of Venables and Gasiorek’s suggested outcomes. In addition, the BTE has been critical of some aspects of Venables and Gasiorek’s agglomeration theory, developed in the same paper (BTE 1999, pp. 95-96, 210). It therefore seems clear that given the two way road problem, the impact of improved transport links on regional economies is context specific and must be assessed on a case by case basis. SACTRA itself concludes 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 and in some circumstances the benefits will accrue to other competing regions…assessment of whether economic impacts will actually benefit the intended target area will need to consider impacts outside the immediate neighbourhood…greater attention should be paid to the question of where the impacts will occur and on whom they will fall. (SACTRA 1999, Summary Report, para. 40) As suggested above, particular attention must be paid to such conclusions within a New Zealand context. While the theoretical issues raised above should be considered, differences in geography, population density, urban form and the urban/rural relationship in relation to the UK/Europe (and North America) mean that care must be taken in applying theoretical results within a New Zealand context. For example, as suggested above, lower population densities and geographical factors may mean that the commuting/migration issues described for the UK may be different for New Zealand outside major conurbations. This reinforces the need to examine development impacts on a case by case basis. 4.2.5 Supporting measures and limits on impacts A key issue, identified by SACTRA and other commentators is that transport improvements alone are unlikely to stimulate a region’s economy. As is the case with national development, transport is likely to be a necessary but not sufficient basis for regional development. SACTRA (1999) quotes the AA/CBI (1998) survey of economic development officers which indicates that the availability of suitable sites and a skilled workforce are important decisions 87
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