Assessing spatial equity and efficiency impacts of transport infrastructure projects

Abstract

Policy decisions on transport infrastructure investments often require knowledge of welfare effects generated from using these infrastructures on a detailed regional level. This is in particular true for the EU initiative promoting the development of the trans-European transport (TEN-T) networks. As projects within this initiative affect regions in different countries, incentive compatible financing schemes cannot be designed without knowing where the benefits accrue. Furthermore, this initiative is also intended to contribute to the cohesion objective on a community scale, and only with regional impact studies one can assess to which extent these objectives are attained. As standard cost-benefit analysis is unable to assign benefits to eventual beneficiaries in the economy, we develop and apply a spatial computable general equilibrium (SCGE) model as a suitable alternative. The model has a household sector and a production sector with two industries, one producing local goods, the other producing tradables. Regions interact through costly trade, with trade costs depending, among others, on the state of the infrastructure. New links reduce trade costs, which changes trade flows, production, goods prices and factor prices and thus eventually the welfare of households in different regions. We present the formal structure of the model, the calibration procedure and the data sources for calibrating the model and estimating the trade cost reductions stemming from new transport links. As the model is only able to quantify effects related to trade in goods we also suggest a simplified approach to add effects stemming from passenger transport. We apply the methods to a policy experiment related to the TEN-T priority list of projects. We quantify project by project the social return, check whether significant benefit spillovers to countries not involved in financing might prevent realization of projects in spite of their respective profitability from European wide point of view, and finally we evaluate the contribution of each project to the spatial cohesion objective. Our results confirm sceptical views on EU involvement in infrastructure policy that have been expressed in the literature.