How Effective is Transportation Infrastructure? A Literature Review

Although few studies have been done on the impact of infrastructure development in transition economics and the Commonwealth of Independent States (CIS), many studies have been conducted to examine the cost-benefit relationships of building new roads, as well as the development of these networks within other transition economies. Studies have generally shown that there is a positive relationship between transit infrastructure and economic growth, as well as that infrastructure capital “increased industry and national productivity in the United States” (Aghion and Schankerman 1999: 82). The first of the studies being reviewed for the purposes of this paper is Philippe Aghion and Mark Schankerman’s article “Competition, entry and the social returns to infrastructure in transition economies”. The main argument of their study is that “the potential for developing competitive markets in transition economics has been inhibited by the inadequacy of both the institutional and physical infrastructure” (Aghion and Schankerman 1999). The authors continue to suggest that in order to assist success in transition economies that governments and multi-lateral aid agencies need to find a way to quantifiable measure the social returns from infrastructure projects and how these factors influence economic performance.

Although Aghion and Schankerman’s study also provides insight to the lack of development of government and telecommunications infrastructure in transition economies, their study centers on if and how transportation infrastructure helps promote market competition. Their paper finds that “indirect effects of infrastructure investment depend on features of the economic environment, including the number of firms in the market (initial density), the degree of cost asymmetry, the proportion of high cost firms, and the initial level of competition (or transaction costs)” (Aghion and Schankerman 1999: 98). Most of the demand for infrastructure, according to the authors, depends on the political economy, which has serious implications for the transition economies and governments of the CIS. If the political economy is one of the most important factors in the success of development from the building of infrastructure, than the historical evidence would seem to suggest that the more liberal the nation, the more successful transport infrastructure will be in facilitating economic and social growth.

Aghion and Schankerman’s model includes measures for government and telecommunications infrastructure as well as transportation. Overall their study shows that there is a relationship between developing infrastructure and economic growth and political liberalization. What is unclear is the distribution of winners and losers that the authors reference in terms of low-cost and high-cost firms. The authors also suggest that the research they created should be followed with a more in-depth analysis of political economy and how that essentially impacts the effectiveness of infrastructure in economic development.

Feinberg and Meurs’s paper “Market Report, Infrastructure and Exchange Rate Passthrough in Central and Eastern Europe” provides an alternative to Aghion and Schankerman’s argument that “physical infrastructure is crucial for competitive market development” (Feinger and Meurs 2005: 23). Feinber and Meurs found the infrastructure in Central and Eastern Europe (CEE) inferior to the needs of the nations. They also point out that the World Bank and other international agencies have made infrastructure development a priority for project lending, but that the economic failures of the states that received many of these loans left the infrastructure in disrepair or insufficient for growth. (Feinberg and Meurs 2005)

In this study, Feinberg and Meurs analyze “13 broad industry sectors for the years 1991-200 for Bulgaria, Hungary, Poland, Romania, and Slovenia with data…and (6) an index (constructed by the authors) of physical infrastructure in the five countries” (Feingber and Meurs 2005: 24). The results of the paper finds the impacts of physical infrastructure unclear but that “market reforms (improving the legal/institutional infrastructure) in Central and Eastern Europe have had the desired effect of increasing the integration of these countries’ economies into the global economic system, with gains in the competitiveness of domestic markets” (Feinberg and Meurs 2005: 29). Although the relationship between economic growth and the development of physical infrastructure was unclear, the data does suggest that the improvement of physical infrastructure may increase economic growth and capital movement. The authors of the study expected a stronger impact from infrastructure on economic development than what was shown in their results. Although the nation data used in the Feinberg and Meurs study does not include any member of the CIS, the shared history and economic performance of Central and Eastern Europe and the CIS is reasonable. Both studies discussed thus far have found some relationship between infrastructure and economic development. What is interesting is that both authors also account for other types of infrastructure, specifically in terms of government and social programs.

The final component to the literature review is a book by Rietveld and Bruinsma, Is Transport Infrastructure Effective?. The authors take a more economic and urban planning approach to the question, whereas the previous two articles were predominantly social science and economics oriented. Rietveld and Bruinsma discuss infrastructure as it relates to public funding and the impact of it on the delivery of social and economic goods. The financing of infrastructure, according to the authors tends to alternate between public and private financing, depending on the policies in vogue at the time. Overall, however, there has been a decline of funding from the public sector in the last twenty years, the authors cite many causes that may have influenced government spending, specifically the “changing opions about the role of the state in the economy and the society as a whole” in the 1980s (Rietvel and Bruinsma 1998). The authors also suggest the approach taken by Grubler and Nakiconovic in 1991, who found that there was a life-cycle to the funding of infrastructure by the public sector, in which the overlap became increasing smaller between the two. The cycles would include the canal cycle in the beginning of the 19th century, the railway cycle in the first half of the 19th century, the 20th century cycle of road and the current or to be occurring cycle of aviation and telecommunications. (Rietveld and Bruinsma) Although public funding for infrastructure types has seemed to pull away, a simple explanation seems to be that the initial costs and energy required to initially plan, develop, and build the infrastructure are highest and the residual maintenance of these projects makes the state seem less involved in infrastructure as a whole. In some cases, such as in Russia after the dissolution of the Soviet Union, the privatization of rail has also shifted the need for public capital for maintenance into private companies who run freight and passenger rail.

Rietveld and Bruinsma also discuss the issue of accessibility, specifically the ease of use, and the effectiveness of infrastructure. The authors do a fair job compiling other studies that have operationalized these concepts and proceed into a discussion of calculating transport costs. They argue, much like the previous two articles, “transport infrastructure investment lead to changes in generalized transport costs via shorter distances or higher speeds, which give rise to reductions in fuel, capital and labour costs” (Rietveld and Bruinsma 1998: 47). This decrease in transportation costs would, in theory, increase productivity, which will in turn lead to growth of gross domestic product (GDP). Development of infrastructure, specifically accessible and well-planned infrastructure can also positively impact property value, which is also a facilitator of investment and growth in developing and developed nations. For Rietveld and Bruinsma the “inequalities in accessibility are least pronounced in the road network…[however] in the rail network inequalities are clearly higher” (Reitveld and Bruinsma 1998: 139). The better accessibility for road networks are partially due to the actual cost of roads versus rail and also due to the ease of expanding and adding onto existing road networks, whereas expansion and changes in rail and create more problems and cost more. Also roads are more likely to be used for both economic and personal travel, whereas the differences between passenger and industrial rail are more challenging due to the different gauges in rail lines, locomotives, and the planning process differences between industrial and passenger rail.

While plans for roads that serve industrial and residential areas might differ in the amount of capacity and how the network as a whole will react to the new road or linkage, traffic planning models are widely used internationally by Western governments to determine how many lanes are necessary and where connections should be made based on user demand. Rail is harder to determine demand since passenger rail and industrial rail require specialized trains that are able to adapt to the different types of lines, and set schedules are not always able to meet demand, and sometimes can actually run at a higher cost since a train without product or passengers following the schedule might be necessary in order to make the next connection. The remainder of the book delves into comparisons of European accessibility studies, corridor development, and some case studies. With the varying opinions on how to determine and measure accessibility, the author’s comparison is useful and shows that for a most part population, type of transit infrastructure, and usage rates are standard in determining this factor. As a whole, the authors are advocating for the building of road networks, and they show a compelling link between positive influx of GDP due to the development of infrastructure.