Transcript Transport, Economic Growth and Poverty Reduction

Transport, Economic Growth and
Poverty Reduction
A World Bank Seminar
February 26th, 2004
Four parts of the seminar
1. Introduction showing why we are more interested in
the broader economic impacts of transport projects
than we used to be;
2. Presentation by Profs. Bennathan and Hulten on their
study of the impact of infrastructure investment on
the productivity of India’s manufacturing industry;
3. A summary of the findings and recommendations of
the SACTRA review of the relationship between
transport, transport intensity and economic growth;
4. Discussion on what more we could and should be
doing, if anything, in respect to the broader impacts
of transport projects.
Incompatibility between objectives and
evaluation
• Many transport projects have stimulation of
economic growth or poverty reduction as an
objective
• The measure of benefit is based on vehicle
operating cost and time savings
• There is no obvious or proven link between these
benefits and economic growth or poverty
reduction
• Many attempts to demonstrate these links have
been inconclusive
Project Objectives
• Cambodia Rural Infrastructure
“ to enhance the livelihood…by providing sustainable access to
markets and essential services.”
• Vietnam Rural Transport III
“ to reduce rural poverty by….improving access to markets, offfarm economic opportunities and social services; …
supporting small scale contractors and transport service
operators.”
• China: Hubei Shiman Highway Project
“ to support the socioeconomic development of Hubei province,
...thereby fostering intra-and inter-provincial trade.”
• Equatorial Guinea Transport Infrastructure
“ to contribute to the country’s Poverty Reduction Program by
assuring more efficient movement of goods and services.”
Assessment of project impacts
• Typically reduction in vehicle operating costs and
savings in travel time for vehicle occupants
• BUT rarely any assessment of how the benefits are
distributed – not even between the infrastructure
agency, transport operators or their clients. And
almost never any geographical or social analysis to
see how the poor will be impacted, either by
reduced consequences of poverty (better access to
social services) or better access to markets or
employment.
Nothing new !
Estimating Highway Benefits in Developing Countries
Robert Brown and Clell Harral 1969
• Present methods of CBA are unsound because they are based on
a misunderstanding of the nature of the demand curve for
transport. Transport cost reductions are not an adequate measure
of the increase in production that can occur
• A preferable method of evaluation would be to estimate directly
the likely increases in production
The Economic Benefits of Road Transport Projects
Herman van der Tak, 1971
• How to take account of imperfect competition, price distortions
and benefits to other economic regions
Internal criticism of economic evaluation
methods
Economic analysis of sector investment
programs (PRWP 1973, 1998)
- should include a clear rationale for the
expenditure, motivated by a desire to correct
market failure or alleviate poverty, otherwise
public spending simply crowds out private supply,
resulting in few net benefits to the economy
Other criticisms of current evaluation
methods
• Evaluation of individual projects can miss “network”
benefits;
• Governments can use Bank funding of “good” projects to
release own funds for “less good” projects – particularly
important for SWAp projects;
• High discount rate leads to focus on marginal improvement
projects rather than major projects with longer term
objectives;
• Seen by Task Managers as an obstacle to be overcome
rather than a tool to define a “better” project.
Handbook on Economic Analysis of
Investment Operations (WB, 1998)
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What is the objective of the project?
What will happen if it implemented, and what if it is not?
Is the project the best alternative?
Are there any separable components and how good are they
separately?
Who are the gainers and losers?
Is the project financially sustainable?
What are the fiscal and environmental impacts?
Is the project worthwhile?
What is the risk of the project not achieving its objectives?
(http://publications.worldbank.org/ecommerce/catalog/productdetail?product_id=219123&)
Evolution of evaluation methods
• Present methods of economic evaluation evolved
over last thirty years or so. Many technical
improvements but few conceptual changes.
• Increasing unease that these methods might not be
consistent with current project objectives.
• Also unease of lack of demonstration that
investment in transport infrastructure really
stimulates economic growth or results in reduction
in poverty, however defined
• Some reassessments by EU, Australia, UK, some
other governments and some academics
Recent relevant studies (i)
• World Development Report, 1994
• The Direct and Indirect Economic Effects of
Transportation Infrastructure
- Marlon Broadnet, 1996
• Transport investment and economic development
- David Banister and Joseph Berechman, 2000
• Integrating transport with socio-economic activity
- John Preston, 2001
• Benefits and Costs of Transport
- Lakshmanan, Kijkamp, Ritveld and Verhoef, 2001
Recent relevant studies (ii)
• Assessing the Benefits of Transport
- European Conference of Ministers of Transport, 2001
• Transport and Economic Growth: The Myths and the Facts
- European Federation for Transport and the Environment,
2001
• Facts and Furphies in Cost Benefit Analysis: Transport
- Bureau of Transport Economics, Australia, 1999,
• Transport Investment, Transport Intensity and Economic
Growth
- Department of Transport, UK, 1999
World Development Report, 1994
“Although there is no consensus on the
nature of the impact of infrastructure
on growth, many studies have
indicated that the role is substantial
and frequent, and often greater than
that of investment in other forms of
capital.
BUT there is need to explain why
the findings vary so much from
study to study. Until this problem is
resolved, results are neither specific
or solid enough to serve as a basis
for designing policies for
infrastructure investment.”
Box 1.1, page 15
The Direct and Indirect Economic Effects
of Transportation Infrastructure
- Martin Boarnet, ITS Irvine (1996)
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Some of the direct effects (within the jurisdiction
of investment in the road) would have occurred
elsewhere if the investment had not been made.
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So there is a negative indirect effect (outside the
jurisdiction of investment) that needs to offset the
usual assumed economic benefit.
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The main impact of highway investment in
California was a transfer of growth from counties
distant from the investment to those closer to it. The
overall growth impact was positive but small
Transport investment and economic
development
- David Banister and Joseph Berechman, 2000
• It has always been assumed that adequate transport infrastructure
is a prerequisite for economic development, yet this assumption
has never been investigated in depth.
• Conventional cost benefit analysis of individual projects should
be complemented by a broader economic impact analysis of the
transport network as a whole.
• Assessment of the value of an individual project should include
its potential for increases in productivity and its spatial impacts
in terms of regional and local distribution of production and
services
Integrating transport with socioeconomic activity
John Preston, Transport Studies Unit, Oxford
• Although transport economists say that transport is
an intermediate good, in economic evaluation they
treat it as a any other consumption good. As it is
an intermediate good to almost all other activities,
their prices should be included in the transport
demand function. Since it is impossible to include
them all, we omit them all.
• This is problematic and there should be a
reconsideration of the links between transport and
socio-economic activity.
Benefits and Costs of Transport
Lakshmanan, Kijkamp, Ritveld and Verhoef
(Papers in Regional Science, 80, 139-164, 2001)
Changes in transport bring about a large number of
changes in the economy, many having welfare improving
effects. BUT
There is no clear evidence of positive externalities that
are not taken account of in the measurement of consumer
surplus.
The major problem is the specification of demand
functions, that should reflect the indirect effects (trade
growth, spatial distribution of activities, productivity,
housing and labor markets, monopolistic prices).
Some myths of transport and growth
European Federation for Transport and the Environment
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Transport drives the economy
More transport infrastructure is always worthwhile
Traffic growth is inevitable
Road pricing is inequitable and will frustrate economic
growth
European Conference of Ministers of Transport
Assessing the
Benefits of
Transport
ECMT/OECD
2001
• The main benefits of transport:
Accessibility and cost savings
• Different approaches to measuring the
benefits: Engineering, political,
geographic, macro-economic, planning,
CBA
• Socio-economic cost-benefit assessment:
Always needed and useful
• Adding effects to CBA: Depends on
circumstances. Distribution effects
always important and often surprising
• What part of external benefits is included
in CBA? Not only impacts on GDP
• Theoretical treatment of transport and
the economy: Not well understood, more
research urgently needed
Conclusions of ECMT
• CBA’s main deficiency is that network effects are difficult to
include and some important impacts cannot be measured in
monetary terms
• Macroeconomic measures based on GDP are deficient in that
many costs and benefits (eg on air quality and leisure time) are
not included. Finding causal linkages between transport and
GDP is marred with uncertainties
• CBA includes useful information for project assessment
concerning users willingness to pay for non-marketed services
• Macroeconomic analyses of productivity growth can provide
useful background information for policy decisions on transport
investments, and contribute to knowledge about network effects
• Multi-criteria assessments can be a useful as complimentary to
CBA
Australian Government
• Are indirect benefits measured in
BCA? Yes, mostly
• Are transmitted benefits included? Yes,
mostly
• Imperfect competition: How relevant
to BCA? Could be significant
• Can regional development impacts be
believed? Usually exaggerated
• Are there any unquantified
externalities of transport? Yes, positive
and negative
• Is multi-criteria analysis an advance on
BCA? Can be, if used with caution
UK Government
TRANSPORT INVESTMENT,
TRANSPORT INTENSITY AND
ECONOMIC GROWTH
FINAL REPORT
SACTRA
Do transport improvements
lead to economic growth?
Is it possible to de-link
traffic growth from
economic growth?
Are economic impacts fully
captured in conventional
cost benefit analysis?
Summary of these reports
• Although there is a strong belief in the links between the
quantity of transport infrastructure and economic growth,
there is no conclusive evidence to support it;
• Under conditions of perfect competition throughout the
economy, a fully specified conventional CBA could
incorporate all the supposed additional social and
economic impacts of investments;
• Despite market imperfections and the difficulties of
specifying transport demand functions, current CBA
methods can give a reasonable approximation to the total
project benefits. However, they tell us little or nothing
about how the benefits are distributed or how they
contribute to economic growth or poverty reduction.