This paper demonstrates how road improvements can be interpreted as productivity improvements in the transportation services industry. Such economic gains are then translated into a general equilibrium context in the case of the Peace Bridge between Buffalo, New York, and Fort Erie, Ontario, Canada. Variables exogenous to the model are (a) the measured travel time enhancements to be incurred on the improved link and (b) the forecast value of shipments by each industry to be moved across it. This information is used to estimate industries' responses to these travel time reductions in terms of direct transportation costs, inventory carrying costs, and the value of failed shipments. Extensive interviews with carriers and producers support the notion that improved travel times encourage producers to extend their market areas and thereby increase their production in the short run. To measure production change, a regional input-output model was recalibrated for each shipping industry's productivity improvements and their trade coefficients were commensurately adjusted. The economic contributions of the shipments to the economic area around Buffalo before and after the improvement were then compared. It is recognized that long-run transportation cost reductions are as likely to occur as reduced costs to producers (rather than as production increases). Nonetheless, it is asserted that by treating producer benefits strictly as production changes, producers' surplus is more readily measured. Thus, this approach converts the measurable change directly attributable to a transportation investment - travel time savings - into broader economy wide changes. Moreover, these changes in jobs, household incomes, and taxes can be reported with industry and geographic specificity, which is often a requirement for valid project-specific evaluations.
All Science Journal Classification (ASJC) codes
- Civil and Structural Engineering
- Mechanical Engineering