Effects of Road Investments on Economic Output and Induced Travel Demand

Abstract

The objective of this study is to analyze the effects of road transportation investment on economic output and induced travel demand. Data for U.S. urbanized areas are analyzed within a dynamic panel vector auto-regression model to test whether the effects of transportation-induced economic growth and travel demand can be empirically validated. The results show that investment in road capacity increases average economic growth while simultaneously inducing additional growth in traffic (vehicle miles traveled). Indeed, a general failure of investment to alleviate levels of congestion is found; this finding suggests that productivity shifts are brought about through a net increase in the scale of travel and associated interactions rather than improved network performance as measured by travel times. The evidence also shows that congestion forms part of the decision criterion used to allocate investments in road capacity. If improvements in network performance are to be achieved in a climate of travel demand growth, demand management techniques may be more effective than capacity expansion.