The broader economic consequences of transport infrastructure investments

Abstract

A major question in Economic Geography relates to the scale and nature of transport infrastructure’s contribution to the broader economy. While Cost-Benefit Analysis (CBA) is the most widely used of the three potential approaches, the recent interest in the wider economic benefits of transport infrastructure has spawned a variety of macroeconomic models. However, the estimates of magnitudes and direction of economic impacts of infrastructure by various macroeconomic models are sharply different, and these models shed little light on causal mechanisms linking transport and the economy. This paper has two aims: first, to highlight the wider economic benefits of transport infrastructure from the observed role of railroads and waterways in economic development, and two by reviewing recent theoretical developments to identify the multiple causal mechanisms which link transport and economic growth such as : market expansion, gains from trade, technological shifts, processes of spatial agglomeration and processes of innovation and commercialization of new knowledge in urban clusters (made possible by transport improvements). Hence the need for developing general equilibrium analyses of transport-economy linkages.