Research 350 - NZ Transport Agency

4. APPROACHES TO ASSESSING REGIONAL ECONOMIC AND OTHER DISTRIBUTIONAL EFFECTS
reconcile these to changes in the global SCBA (and noting that simply adding these on would
constitute double counting). The BTE adopted a similar approach when reviewing economic
effects of the Berrima and Mittagong bypasses (BTE 1994), albeit on an ex-post basis.
4.3.2 I-O analysis
Unlike SCBA, I-O analysis enjoys the advantage of being able to provide policymakers with
information on the economic impacts of transport such as employment outcomes, changes in
regional product and impacts on defined local industrial sectors (e.g. accommodation,
finance, transport, construction, personal services).
SACTRA also sees I-O as useful in a regional context, arguing that it can help identify ‘key
linkages’ in regional economies which could assist in understanding impacts of changes in
transport provision (SACTRA 1999, para. 5.106).
Thus, ACG used I-O analysis to model the impacts of three New Zealand road funding
packages on ‘regional GDP’ (ACG 2004, pp. 68-70).
I-O analysis gives an idea of economic impacts rather than economic efficiency and suffers
from issues such as its relating to its lack of model constraints (especially its lack of capital
formation and labour market constraints) and assumptions about constant levels of
productivity and technology. However, the issue of constraints poses less of a problem at the
regional level. BTE notes that I-O’s ignored constraints matter more at the national level and
that labour supply constraints, in particular, are weaker across regions than is the case for
the nation, given that labour is somewhat regionally mobile (BTE 1999, p. 50).
Other constraints and issues mentioned by BTE such as restrictions on capital availability,
crowding out of competing national investments, national government budget constraints
and the reduction of consumption expenditure may also generally be less of an issue in
regional assessments (assuming that impacts are ‘ringfenced’ in the first instance) though
they may be relevant at a national level depending on the scale of the project 27 .
Likewise, despite their strong general preference for CGE over I-O modelling, Dwyer, Forsyth
and Spurr also see I-O modelling as acceptable at the local level, noting that the ‘Input-Output
assumption of freely available resources is closer to the truth at the local level because labour
and capital can flow to the area from other areas’ (Dwyer, Forsyth & Spurr 2004, pp. 313-
314).
Further, I-O can be a quite parsimonious method of modelling economic impacts. I-O
effectively represents a simplified form of CGE modelling and econometric work has
demonstrated that CGE model solutions converge on the I-O solutions under ‘small region’
assumptions (Docwra & West 1999, p. 937). Dwyer, Forsyth and Spurr also see CGE modelling
at the ‘local level’ as costly and unwarranted (Dwyer, Forsyth & Spurr 2004, p. 313).
27 In particular, BTE sees it as ‘conceivable’ that regional projects will result in higher consumption
expenditure, thereby inducing more regional employment than the project does itself, as is often
indicated by I-O models. Conversely, at the national level, flow-on impacts higher taxes and the crowding
out of competing projects will result in reduced consumption expenditure and may actually lower
employment due to the crowding out of other investment, lowering consumption expenditure (BTE 1999,
pp. 50-51).
However, ‘government budget constraints’ and crowding out may also be issues at regional level,. Key
issues include the level of government funding a project (National ? Local ?) and whether there are other
competing projects in the region.
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