Wider economic benefits of transport schemes in remote rural areas

Abstract

Remote rural areas tend to experience slower population growth (sometimes decline), slower growth in GDP, fewer employment opportunities and lower productivity relative to the economy as a whole. Transport policy interventions are typically focussed on addressing structural economic weaknesses. Yet despite a strong general interest in wider economic benefits, their relevance to schemes in remote rural areas has received very little previous discussion. We argue that remote rural areas are likely to exhibit market distortions in the goods and labour markets, primarily arising from a lack of alternatives and choices in these areas. We also illustrate the empirical importance of the wider economic benefits, caused by these distortions. Using case studies from the Highlands and Islands of Scotland to do so. We find that focusing the cost benefit analysis only on the primary transport market can significantly underestimate welfare benefits, and that the degree of underestimation varies significantly case by case. It is highest for schemes where the impacts on business and employment are large and where all of the output and employment effects occur in a remote rural area.