The Casual Linkages between Freight and Economic Fluctuations

Abstract

This article considers the close association between freight transportation and industrial production and input inventory investment, as suggested by a simple stage-of-fabrication model that incorporates transportation. Visual comparisons suggest a similarity between cycles of freight flows and input inventory. The author found that freight movements are predictive of economic recessions, a feature explained through the connection between freight movements and inventory cycles and industrial production. For-hire freight movements are more closely related with activities in manufacturing than those in the trade sector, most notably materials-supplies inventories used for production. The author tests his theory using two time series techniques: the Granger causality test and impulse response function. The Granger test confirmed the significant feedback effect between freight movements, production, and inventory investment in a linear framework. The impulse response function showed that adjustment of freight movements in the transportation sector is highly synchronized with adjustment of production and inventory control by firms in the manufacturing sector.