IMPACT OF TRANSPORTATION ON ECONOMIC GROWTH: AN ASSESSMENT OF ROAD AND RAIL TRANSPORT SYSTEMS
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CHAPTER ONE
INTRODUCTION
One of the key factors that play a pivotal role in a region’s economic growth is the presence of a reliable and efficient transportation system, this is mainly due to the fact that a well developed transportation system provides adequate access to the region which in turn is a necessary condition for the efficient operation of manufacturing, retail, labour and housing markets.
Transportation is a critical factor in the economic growth and development. It is a wealth creating industry on its own inadequate transportation limits a nation’s ability to utilise its natural resources, distributes foods and other finished goods, integrate the manufacturing and agriculture sectors and supply education, medical and other infrastructural facilities. There is the need therefore to maintain and improve the existing transportation and build new infrastructures for a national wealth. The national wealth is the growth domestic products (GDP) which is an indicator or measures of the rate of economic growth.
Transportation infrastructure is critical to sustain economic growth because people want to improve their standard of living and they see increased income as the way to achieve that goal, transportation system enhancement are in turns a means of maintaining or improving economic opportunities, quality of life and ultimately income for people in a particular region Lucas (1998)
Transportation also has a broader role in shaping development and the environment. Policy concerns in the next millennium will increasingly focus on the effects of transportation on where people live and on where businesses locate; and on the effects that these location decisions have on land use patterns, congestion of urban transportation systems, use of natural resources, air and water quality, and the overall quality of life Issues of urban sprawl, farmland preservation, and air and water quality have already pushed their way to the forefront of policy debates at both the national and local levels. To make prudent decisions, policy makers must be equipped with the best information and analysis possible about the interactions among these various factors.
Transportation becomes the back bone of any economy, especially countries like Nigeria, as such an anatomy of aspects relating to inefficiencies and lack of good transportation network in Nigeria coupled with low rate of economic growth (GDP) is crucial, attached to this is the poor government policy on transportation (Lack pf regulation of fees charged by private transporters, inadequate fuel. Lack of spare parts and above all the prevalence of bad roads and lack of security have succeeded in trimming down the transport system in Nigeria which have a negative effect on the economic growth.
Investment in transportation infrastructure is critical to sustained economic growth. Mobility studies show that transportation is absolutely essential to economic productivity and remains competitive in the global economy. An international study found every 10 percent increase in travel speed; labour market expands 15 percent and productivity by 3 percent (Barrister and Berechinan. 2000).
It is universally recognized that transport is crucial for sustained economic growth and modernization of a nation. Adequacy of this vital infrastructure is an important determinant of the success of a nation’s effort in diversifying its production base, expanding trade and linking together resources and markets into an integrated economy. It is also necessary for connecting villages with towns, market centres and in bringing together remote and developing regions closer to one another. Transport, therefore, forms a key input for production processes and adequate provision of transport infrastructure and services helps in increasing productivity and lowering production costs.
The provision of transport infrastructure and services helps in reducing poverty. It needs no emphasis that various public actions aimed at reducing poverty cannot be successful without adequate transport infrastructure and services. It is difficult to visualize meeting the targets or universal education and healthcare for all without first providing adequate transport facilities.
All sectors, including transport, operate within the socioeconomic framework provided by the State. Specific policies are designed within the framework for each sector in order to, meet national goals and objectives. Currently, the main objective of development planning in India is higher growth in Gross Domestic Product (GDP). The aim is to achieve a target of 8 percent growth in GDP by 2007, i.e. by the end of Tenth Five Year Plan. The higher rate of economic growth must also be accompanied by wider dispersal of economic activity and has to go together with the objectives of reduction in poverty, provision of gainful and high quality employment, improvement in literacy rates, reduction in the growth of population, reduction in gender inequality in illiteracy and wage rate, reduction in infant mortality, etc. As a service industry, transport does not exist for its own sake. It serves as a means to achieve other objectives. In formulating policy for the development of the transport sector, various macro objectives mentioned above therefore have to be taken into account. Some of these are economic in character while others are of a socio-political nature. Economic and non-economic objectives are not always consistent. However, their mix is one of the important factors which determine the pattern of investment and its funding in various sectors of economy.
Transport demand, both freight and passenger, is linked to the level of economic activity and development needs. It runs parallel to the growth of GDP. A higher rate of growth will therefore mean higher transport demand. However, as growth of GDP results in dispersal of economic activity, the demand for transport will go up further.
The demand for transport services is also affected by the structural changes that are taking place in the Indian economy. As a result, the share of high value low volume commodities has been increasing, which in turn demands more flexible modes such as road transport. There has been an increase in the level of urbanization owing to migration and growth of population. The share of urban areas in the total GDP therefore has been on the rise. Such a spatial shift in the distribution and concentration of economic activity has a profound effect on the nature and level of transport demand. The most obvious result was the increase in demand for urban transport services. Taking various factors into account, it is expected that the elasticity of demand for freight traffic with respect to GDP growth will decline in the future but will still he more than one. With India’s resolve to move to a higher growth path, it means that the demand for transport will continue to experience a high growth rate.
TRANSPORTATION AND ECONOMIC GROWTH
Transportation also contributes to the economy by providing millions of jobs. It allows men and women to earn their living by manufacturing vehicles and by driving, maintaining, and regulating them to allow for the safe and efficient movement of goods and people. One out of every seven jobs in the United States is transportation related Transportation jobs in transportation industries as well as in non-transportation industries employed nearly 20 million people in 2002, accounting for 16 percent of U.S. total occupational employment. For example, the for-hire transportation sector employed over 44 million workers In 2002 More than 60 percent of these for-hire workers are either in freight-related occupations or in Jobs that directly support freight transportation. An additional 1.7 million workers are employed in transportation equipment manufacturing and another 4.5 million in transportation-related industries such as automotive service and repair, highway construction, and motor vehicle and parts dealers (USDOT BTS 2004). Transportation-related occupations also make up a significant portion of the employment of non-transportation industries such as truck drivers, freight arrangement agents, and freight-moving workers in the wholesale and retail industries. In 2002, there were about 9.2 million people employed in transportation-related occupations in non-transportation industries.
Growth in productivity is the fundamental driving force for economic growth Productivity growth in freight transportation has long been a driving force for the growth of U.S. overall productivity and contributed directly to the growth of the U.S. GDP. For example, from 1991 to 2000 labor productivity rose 21 percent in the overall non-farm business sector’ During the same time period, labor productivity rose 53 percent for rail, 23 percent for trucking, and 143 percent for pipeline. All three of these modes are primarily engaged in freight transportation. Such productivity gains result in lower transportation costs and lower prices for consumers. This brings savings to consumers and reduces business costs.
Measuring Economic Benefits of Transportation
If all of the steps described above were followed, planners and policy makers would be left with a list of investments that have the potential to generate economic benefits. The three part analysis is shown in Figure A-7 provide a reasonable comprehensive analysis of each project’s likely contribution to economic development.
When a highway improvement is proposed, the economic evaluation must first identify which industries will be impacted. This involves the following sequence of three analytical steps within the Commodity Flow analysis.
Locate the improvement on the highway or rail network.
Identify what commodities are being shipped and person trips on the roadway that will have the proposed improvements and forecast the growth of these commodities.
Locate the origins and destinations of these commodities and identify the industries that are involved in shipping and receiving.
Road Transport
An automobile is a wheeled passenger vehicle that carries its own motor. Different types of automobiles include cars, buses,trucks, and vans. Some include motorcycles in the category, but cars are the most typical automobiles. As of 2002 there were 590 million passenger cars worldwide (roughly one car for every ten people), of which 170 million in the U.S. (roughly one car for every two people).Wikipedia, (2007)
The automobile was thought of as an environmental improvement over horses when it was first introduced in the 1890s. Before its introduction, in New York City alone, more than 1,800 tons of manure had to be removed from the streets daily, although the manure was used as natural fertilizer forcrops and to build top soil. In 2006, the automobile is recognized as one of the primary sources of world-wide air pollution and a cause of substantial noise pollution and adverse health effects.
The first forms of road transport were horses, oxen or even humans carrying goods over dirt tracks that often followedgame trails. As commerce increased, the tracks were often flattened or widened to accommodate the activities. Later, thetravois, a frame used to drag loads, was developed. The wheelcame still later, probably preceded by the use of logs asrollers.
With the advent of the Roman Empire, there was a need for armies to be able to travel quickly from one area to another, and the roads that existed were often muddy, which greatly delayed the movement of large masses of troops. To resolve this issue, the Romans built great roads. The Roman roadsused deep roadbeds of crushed stone as an underlying layer to ensure that they kept dry, as the water would flow out from the crushed stone, instead of becoming mud in clay soils.
During the Industrial Revolution, and because of the increased commerce that came with it, improved roadways became imperative. The problem was rain combined with dirt roads created commerce-miring mud. John Loudon Mac Adam(1756-1836) designed the first modern highways. He developed an inexpensive paving material of soil and stone aggregate (known as macadam), and he embanked roads a few feet higher than the surrounding terrain to cause water to drain away from the surface.
Various systems had been developed over centuries to reduce bogging and dust in cities, including cobblestones and wooden paving. Tar-bound macadam (tarmac) was applied to macadam roads towards the end of the 19th century in cities such as Paris. In the early 20th century tarmac and concrete paving were extended into the countryside.
Transport on roads can be roughly grouped into two categories: transportation of goods and transportation of people. In many countries licensing requirements and safety regulations ensure a separation of the two industries.
The nature of road transportation of goods depends, apart from the degree of development of the local infrastructure, on the distance the goods are transported by road, the weight and volume of the individual shipment and the type of goods transported. For short distances and light, small shipments avan or pickup truck may be used. For large shipments even if less than a full truckload (Less than truckload) a truck is more appropriate. In some countries cargo is transported by road in horse drawn carriages, donkey carts or other non-motorized mode. Delivery services are sometimes considered a separate category from cargo transport. In many places fast food is transported on roads by various types of vehicles. For inner city delivery of small packages and documents bike couriersare quite common.
Rail Transport
Rail transport is the transport of passengers and goods by means of wheeled vehicles specially designed to run alongrailways or railroads. Rail transport is part of the logisticschain, which facilitates the international trading and economicgrowth in most countries.
Typical railway/railroad tracks consist of two parallel rails, normally made of steel, secured to cross-beams, termedsleepers (U.K.) or ‘ties’ (U.S.). The sleepers maintain a constant distance between the two rails; a measurement known as the ‘gauge‘ of the track. To maintain the alignment of the track it is either laid on a bed of ballast or else secured to a solid concrete foundation. The whole is referred to aspermanent way (UK usage) or right-of-way (North American usage).
Railway rolling stock, which is fitted with metal wheels, moves with low frictional resistance when compared to road vehicles. On the other hand, locomotives and powered cars normally rely on the point of contact of the wheel with the rail for traction and adhesion (the part of the transmitted axle load that makes the wheel “adheres” to the smooth rail). While this is usually sufficient under normal dry rail conditions, adhesion can be reduced or even lost through the presence of unwanted material on the rail surface, such as moisture, grease, ice or dead leaves.
Rail transport is an energy-efficient and capital-intensivemeans of mechanized land transport and is a component oflogistics. Along with various engineered components, rails constitute a large part of the permanent way. They provide smooth and hard surfaces on which the wheels of the train can roll with a minimum of friction. As an example, a typical modern wagon can hold up to 125 tons of freight on two four-wheel bogies/trucks (100 tons in UK). The contact area between each wheel and the rail is tiny, a strip no more than a few millimeters wide, which minimizes friction. In addition, the track distributes the weight of the train evenly, allowing significantly greater loads per axle / wheel than in road transport, leading to less wear and tear on the permanent way. This can save energy compared with other forms of transportation, such as road transport, which depends on the friction between rubber tires and the road. Trains also have a small frontal area in relation to the load they are carrying, which cuts down on forward air resistance and thus energy usage, although this does not necessarily reduce the effects of side winds.
Due to these various benefits, rail transport is a major form ofpublic transport in many countries. In Asia, for example, many millions use trains as regular transport in India, China, South Korea and Japan. It is also widespread in European countries. By comparison, intercity rail transport in the United States is relatively scarce outside the Northeast Corridor, although a number of major U.S. cities have heavily-used, local rail-based passenger transport systems or light rail or commuter railoperations.
The vehicles travelling on the rails, collectively known asrolling stock, are arranged in a linked series of vehicles called a train, which can include a locomotive if the vehicles are not individually powered. A locomotive (or ‘engine’) is a powered vehicle used to haul a train of unpowered vehicles. In the U.S.A., individual unpowered vehicles are known generically as cars. These may be passenger carrying or used for freight purposes. For passenger-carrying vehicles, the term carriage or coach is used, while a freight-carrying vehicle is known as afreight car in the United States and a wagon or truck in Great Britain. An individually-powered passenger vehicle is known as a railcar or a power car; when one or more as these are coupled to one or more unpowered trailer cars as an inseparable unit, this is called a railcar set.
Previous studies on the economic development of the United States emphasized infrastructure, business climate, taxation, cost and availability of raw materials, labour, capital, access to markets, and climate when explaining growth of the region.
Plaut and Pluita (1983) in their state level analysis of industrial growth used labor and energy cost, availability and productivity variables, land and raw materials, environment, business climate, taxes and government expenditures as explanatory variables. They found market accessibility, labor variables, land, environment, business climate, and propel1y taxes to be highly significant in explaining all three measures of industrial growth production, employment and capital stock growth.
Carlino and Mills (1987) looked at the determinants of county growth. County level data were used to analyze what variables had an impact on the growth of population and employment during the 1970s and 1980s. Structural equations were estimated using a two-stage least-squares technique for total employment and population, and for manufacturing employment and population, since the manufacturing sector appeared to influence regional economic growth Eight regional dummies were used to identify the association of a county to a particular region Population density, interstate-highway density, and family income were shown to contribute significantly to the employment density growth, whereas employment, interstate-highway density, family income, and the central city dummy contributed to the population density growth.
Deller, Tsai, Marcouiller and English (200 I) looked at how amenities influence rural economic growth. Economic growth was represented in their study by three types of growth: growth in population, growth in employment, and growth in per capita income. Results of their analysis showed that higher levels of income inequality are associated with lower levels of growth in terms of population. Property taxes had a negative effect on population and income growth; population over age sixty-five was negatively related with economic growth; climate strongly influenced growth levels of population; all amenity attributes, such as levels of water amenities, developed recreational infrastructure; winter recreational activities, were statistically significant and positively related to economic growth.
Government policies can have an impact on the firm’s decision- making process, particularly taxation and incentive policies. Corporate income and property tax rates can affect a firm’s profits either directly or indirectly (Gerking and Morgan, 1991). It is obvious that a firm’s profits will decrease if the burden of an increase in taxes is borne directly by the firm. This study proved that a firm’s profits decrease if the increase in taxes is passed forward to the consumer. By passing the tax to the consumer through higher prices, the firm’s market will decline, thus indirectly reducing profit.
On the other hand, Newman and Sullivan argue that business taxes should not be viewed strictly as another cost to the firm (Newman and Sullivan, 1988). They perceive business taxes in part as benefit taxes. “Firms derive some benefit from local or state expenditures for fire, public safety, transportation, and perhaps education” (Newman and Sullivan, 1988, p. 216). The relevant question for the firm now would not be which location would minimize the tax burden to the firm, but what location would provide the firm with the most desirable overall fiscal package.
Agglomeration economies represent the cost savings that accrue to firms that locate in communities with a relatively large concentration of manufacturing commercial business activity (Hery and Drabenstott, 1996; Johnson, 2001; McNamara, Kriesel, and Rainey, 1995). The concentration of activity tends to provide broader access to markets, business services, and technological expertise. In addition, agglomeration forces are generally associated with an abundant supply of skilled labor. Thus, communities in or near large Metropolitan Statistical Areas (MSAs) have location advantages over smaller and more remote communities.
As expected, agricultural agglomeration was highly significant and negatively related to the gross county product since agriculture represents an industry that offers an alternative way of land use (Blum, 1982) Wages in agriculture also tend to be lower than in other sectors Employment agglomeration in construction and retail industries were insignificant.
The concentration of roads, measured as the number of miles in all roads divided by land area, represented infrastructure in this study. This variable was highly significant and positively related to the gross county product.
The number of person-trips per year variable represented the ability of the county to attract outside residents for business and/or personal activities in the area. This variable was chosen for its relation to the business and personal travel and service usage. The number of person-trips was highly significant and positively related to the gross county product. The amenity index showed that rural amenities contributed to the increase in income growth in the county.
Another outcome of this research is that economic development was significantly and positively related to the level of human capital in the area. The coefficient for the percent of the population with high school diploma was the highest among all variables, followed by the coefficient on infrastructure. These results imply that counties seeking to increase income growth should insure that they have a comparative advantage or at least be comparable with competing communities regarding the level of human capital and infrastructure.
Large investments have been made for the development of the transport sector in India. This has resulted in the expansion of transport infrastructure and facilities. There have also been impressive qualitative developments. These include the emergence of the multi modal transport system, training centres of excellence and reduction in the arrears of over-aged assets. In spite of these impressive achievements, the transport infrastructure has not been developed to the extent that it can effectively address the problems of accessibility and mobility needs for the movement of people and goods. About 40 percent of villages are yet to be linked with all-weather roads. India has made remarkable progress in many areas while remain regressive in many others. The ongoing liberalization of Indian economy, despite some noticeable bumps, has rekindled a global interest in this slumbering giant. Indian economic growth accelerated to 6.9 percent in 2004-05 as compared to 5.8 percent in 2001-02, 6.1 percent in 1999-00, 6.7 percent in 1989-90, 5.2 percent in 1979-80 and 1.0 percent in 1971-72 in terms of real GDP at factor cost. The combined gross fiscal deficit as percentage of GDP was 8.3 percent in 2004-05RE as compared to 9.9 percent in 2001-02, 9.5 percent in 1999-00, 8.9 percent in 1989-90 and 7.5 percent in 1980-81. The gross domestic capital formation at constant price (a proxy for domestic real investment) as percentage of GDP was 16.8 percent in 2004-05 as compared to 14.8 percent in 2001-02,18.2 percent in 1999-00, 35.4 percent in 1989-90, 76.9 percent in 1979-80 and 136.3 percent in 1971 – 72.
Indian Railways is one of the largest railway systems in the world. By carrying about 1.1 million passengers and over 1.20 million tonnes of freight per day the rail system occupies a unique position in the socio-economic map of the country and is considered a means and a barometer of growth. Rail is one of the principal modes of transport for carrying long-haul bulk freight and passenger traffic. It also has an important role as the mass rapid transit mode in the suburban areas of large metropolitan cities. The growth of railway route length was 0.4 percent in 2004-05 as compared to 0.2 percent in 2001-02, -0.1 percent in 1999-00. 0.4 percent in 1989-90. 0.3 percent in 1979-80 and 0.5 percent in 1971-72.
The road network in India is seemingly very large with a length of about 3 million kilometers. However, it cannot meet the accessibility and mobility requirements of a country of India’s size and population. The growth of road length was higher in all the years as compared to the growth of railway route length. It was 1.8 percent in 2004-05 as compared to 1.5 percent in 2001-02, 0.8 percent in 1999-00, 3.3 percent in 1989-90, 3.2 percent in 1979-80 and 10.3 percent in 1971-72 It is also found that while the growth of road length continuously increasing since 1999-00, the growth of railway route length increasing since 2002-03.
From the above trend it is clear that India’s real economic growth is as a result of rail and road route length growth.
The next step is to divide the value added by transportation into the respective modes. Goods movement-intensive industries have less flexibility in the modes they use than is often understood by economic development officials and transportation planners. Careful analysis of each industry’s logistics indicates which mode dominates the industries shipping patterns. The analysis may reveal opportunities for mode shifts that in turn provide significant cost savings and/or improved productivity, but these opportunities are few and far between. The Alameda Corridor project in Los Angeles, for example, will probably increase the amount of containers moving out of the Port of LA and Long Beach by rail significantly, but only as on-dock rail capacity in increased by terminal operators and only over time. Figure A-4 illustrates the breakout of the value-added from transportation by mode at the national level.
During the past few decades, continued shifts in the U.S. economy towards more services, increased production of high-value and light-weight goods, expanded trade with Mexico and China, and the current pattern of global production and distribution systems influenced trends in U.S. freight transportation As the nation’s economy shifted towards more services, the goods share of GDP declined relative to total GDP. Thirty-four years ago, in 1970, goods accounted for 43 percent of US. GDP, only slightly lower than the 46-percent share of services in GDP But, by 2002 the share of goods in GDP decreased to 33 percent, while the share of services increased to 58 percent Because freight transportation is, in general, more closely associated with goods production than with services production, the decline in goods share of GDP contributed to a slower growth in freight transportation (measured in ton-miles) than the overall growth of GDP in the past few decades Between 1970 and 2002, U.S. real GDP, measured in 2000 chain-type dollars, grew 167 percent During the same time period, US freight transportation, measured in ton-miles, grew only 73 percent Consequently, the freight transportation intensity of the U.S. economy decreased from 059 ton-miles per dollar of GDP.
Freight transportation intensity declined even within the goods producing sector. In 1970, It took 2.1 ton-miles of freight transportation to produce $1 of goods GDP. In 2002, it took only half that amount, 1.1 ton-miles, to produce the same value of goods GDP (in real terms). This trend reflects two underlying changes in the U.S. economy:
the downsizing of products towards lighter weight products (such as computers, cell phones, and hand-held digital devices), and
Improvement in the efficiency of the freight transportation system, not only in terms of faster and timelier delivery, but also higher direct accessibility.
Within those industries that need help and would likely benefit, an understanding of how much each industry uses various modes (both those currently located in Oregon and those targeted by economic development officials) provides the first step in targeting transportation investments. Figure A-5 presents a qualitative rating of the modal intensity for major industry groups based on national averages.
Unfortunately, it will not be sufficient to have this understanding at the national level and it may not suffice at the state level. The successes of most transportation investments vary by region and by rural versus urban corridors. Research on the role of highways and lane expansions in economic development, for example, shows that improvements to rural highway connections between communities can have significant benefits even if there is no congestion.
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