Jean-Paul Rodrigue (2013), New York:
Routledge, 416 pages.
Transportation and Economic Development
Authors: Dr. Jean-Paul Rodrigue and Dr. Theo Notteboom
1. The Economic Importance of Transportation
Like many economic activities that are intensive in
infrastructures, the transport sector is an important component of the economy impacting
on development and the welfare of populations. When transport systems
are efficient, they provide economic and social opportunities and benefits
that result in positive multipliers effects such as better accessibility
to markets, employment and additional investments. When transport systems
are deficient in terms of capacity or reliability, they can have an
economic cost such as reduced or missed opportunities. Efficient
transportation reduces costs, while inefficient transportation
increases costs. The impacts of transportation are not always intended, and can have
unforeseen or unintended consequences such as congestion. Transport also
carries an important social and environmental load, which cannot be
The added value and employment effects of transport
services usually extend beyond employment and added value generated by that activity; indirect effects are salient. For
instance, transportation companies purchase a part of their inputs from
local suppliers. The production of these inputs generates additional
value-added and employment in the local economy. The suppliers in turn
purchase goods and services from other local firms. There are further
rounds of local re-spending which generate additional value-added and
employment. Similarly, households that receive income from employment in
transport activities spend some of their income on local goods and
services. These purchases result in additional local jobs and
added value. Some of the household income from these additional jobs is
in turn spent on local goods and services, thereby creating further jobs
and income for local households. As a result of these successive rounds
of re-spending in the framework of local purchases, the overall impact
on the economy exceeds the initial round of output, income and
employment generated by passenger and freight transport activities. Thus, from a general standpoint the economic impacts of transportation
can be direct, indirect and
is one of the most fundamental and important characteristics of economic
activity as it satisfies the basic need of going from one location to
the other, a need shared by passengers, freight and information. All
economies and regions do not share the same level of mobility as most
are in a different stage in their
mobility transition towards motorized forms of transport. Economies that possess greater mobility are
often those with better opportunities to develop than those with scarce mobility. Reduced mobility impedes development while greater
mobility is a catalyst for development. Mobility is thus a reliable
indicator of development. Providing this mobility is an industry that offers services to its
customers, employs people and pays wages, invests capital and generates
income. The economic importance of the transportation industry can thus
be assessed from a macroeconomic and microeconomic perspective:
- Direct impacts (also known as induced) the outcome of accessibility changes where
transport enables employment, added value, larger markets and enables to save time and costs.
- Indirect impacts the outcome of the economic multiplier effects
where the price of commodities, goods or services drop and/or their
variety increases. Indirect value-added and jobs are the result
of local purchases by companies directly dependent upon
transport activity. Transport activities are responsible for a
wide range of indirect value-added and employment effects,
through the linkages of transport with other economic sectors
(e.g. office supply firms, equipment and parts suppliers,
maintenance and repair services, insurance companies, consulting
and other business services).
- Related impacts the outcome of economic
activities and firms partly relying on efficient transport
services for both passengers and freight. For instance, the
steel industry requires cost efficient import of iron ore and
coal for the blast furnaces and export activities for finished
products such as steel booms and coils. Manufacturers and retail
outlets and distribution centers handling imported containerized
cargo rely on efficient transport and seaport operations.
Transportation links together the factors of production in a complex
web of relationships between producers and consumers. The outcome is
commonly a more efficient division of production by an exploitation
of geographical comparative advantages, as well as the means to develop
economies of scale and scope. The productivity of space, capital and
labor is thus enhanced with the efficiency of distribution and personal
mobility. It is acknowledged that economic growth is increasingly linked
with transport developments, namely infrastructures but also managerial
expertise is crucial for logistics. The following impacts can be assessed:
- At the macroeconomic level (the importance of transportation
for a whole economy), transportation and the mobility it confers
are linked to a level of output, employment
and income within a national economy. In many developed countries,
transportation accounts between 6%
and 12% of the GDP.
- At the microeconomic level (the importance of
transportation for specific parts of the economy) transportation
is linked to producer, consumer and production costs. The importance
of specific transport activities and infrastructure can thus be
assessed for each sector of the
economy. Transportation accounts on average between
15% of household expenditures while it accounts around 4% of the
costs of each unit of output in manufacturing, but this figure varies
greatly according to sub sectors.
2. Transportation and Economic Opportunities
Transportation developments that have taken place since the beginning
of the industrial revolution have been linked to
growing economic opportunities.
At each stage of human societal development, a particular transport
mode has been developed or adapted. However, it has been observed that
throughout history that no single transport has been solely responsible
for economic growth. Instead, modes have been linked with the function
and the geography in which growth was taking place. The
first trade routes established
a rudimentary system of distribution and transactions that would eventually
be expanded by long distance
networks and the setting of the first multinational corporations.
Major flows of international migration
that occurred since the 18th century were linked with the expansion
of international and continental transport systems that radically shaped
emerging economies such as in North America and Australia. Transport
has played a catalytic role in these migrations, transforming the economic
and social geography of many nations. Concomitantly, transportation
has been a tool of territorial control and exploitation, particularly
during the colonial era where resource-based
transport systems supported the extraction of commodities in the
developing world and forwarded them to the industrializing nations of
the time. More recently, port development, particularly container
ports, has been of strategic
interest as a tool of integration to the global economy as the case
While some regions benefit from the development of transport systems,
others are often marginalized by a set of conditions in which inadequate
transportation plays a role. Transport by itself is not a sufficient
condition for development. However, the lack of transport infrastructures
can be seen as a constraining factor on development.
In developing countries, the lack of transportation infrastructures
and regulatory impediments are
jointly impacting economic development by conferring higher
transport costs, but also delays rendering supply chain management
A poor transport service level can negatively affect the
competitiveness of regions and corporations and thus have a negative
impact on the regional added value and employment. In 2007, the World
Bank published its first ever report which ranked nations according to
their logistics performance based on the so-called
Logistics Performance Index.
Investment in transport
infrastructures is thus seen as a tool of regional development, particularly
in developing countries and for the road sector.
The standard assumption
is that transportation investments tend to be more wealth producing
as opposed to wealth consuming investments such as
services. Still, several transportation investments can be wealth
consuming if they merely provide convenience, such as parking and
or service a market size well below any possible economic return, with
for instance projects labeled "bridges to nowhere". In such a context,
transport investment projects can be counterproductive
by draining the resources of an economy instead creating wealth and
additional opportunities. Efficient and sustainable transport
markets and systems play a key role in regional development although the direction of causality between transport and
wealth generation is not always clear. In
a number of regions around the world, transport markets and
related transport infrastructure networks are seen as key drivers in the
promotion of a more balanced and sustainable development of the region
or even the entire continent, particularly by improving accessibility
and the situation of weaker regions and disadvantaged social groups.
There is also a tendency for transport investments
to have declining marginal returns. While initial infrastructure
investments tend to have a high return since they provide an entirely
new range of mobility options, the more the system is developed the
more likely additional investment would result in lower returns. At
some point, the marginal returns can be close to zero or even negative,
implying a shift of transport investments from wealth producing to wealth
consuming. A common fallacy is assuming that additional transport investments
will have a similar multiplying effect than the initial investments
which can lead to capital misallocation. This means quite
understandably that the economic impacts of transport investments
tend to be significant when infrastructures were previously
inexistent or deficient and marginal when an extensive network is
Therefore, each development project must be considered independently.
3. Types of Transport Impacts
The relationship between transportation and economic development
is difficult to formally establish and has been debated for many
years. There are several layers of activity that transportation can
a suitable location that experiences the development of its
accessibility through infrastructure investment to a better usage of
existing transport assets through management. This is further nuanced by
the nature, scale and scope of possible impacts:
- Networks. Setting of routes enabling new or existing
interactions between economic entities.
- Performance. Improvements in cost and time attributes
for existing passenger and freight movements.
- Reliability. Improvement in the time performance, notably
in terms of punctuality, as well as reduced loss or damage.
- Market size. Access to a wider market base where economies
of scale in production, distribution and consumption can be improved.
- Productivity. Increases in productivity from the access
to a larger and more diverse base of inputs (raw materials, parts,
energy or labor) and broader markets for diverse outputs (intermediate
and finished goods).
Cycles of economic development provide a revealing conceptual perspective
about how transport systems evolve in time and space as they include
the timing and the nature of the transport impact on economic development.
This perspective underlines that after a phase of introduction and
growth, a transport system will eventually reach a phase of maturity
through geographical and market saturation. There is also the risk of
overinvestment when economic growth is credit driven, which can lead to significant
of capital, including in the transportation sector. The outcome is a
surplus capacity in infrastructures and modes creating deflationary
pressures that undermines profitability. In periods of recession that commonly
follow periods of expansion, transportation activities may experiment
a setback, namely in
terms of lower demand and a scarcity of capital investment.
Transport, as a technology, typically follows a path of experimentation,
introduction, adoption and diffusion and, finally, obsolescence, each
of which has an impact on the rate of economic development. They follow
a cyclic behavior where a high level of benefits and productivity is
realized in the early phase while later phases are facing diminishing
is a relevant example of such a diffusion behavior. As most innovations
are eventually abandoned, many technologies go through what can be called
a "hype phase" with unrealistic expectations.
In addition, transport modes and infrastructures are depreciating assets
that constantly require maintenance and upgrades. At some point, their
useful lifespan is exceeded and the vehicle
must be retired or the infrastructure rebuilt. Thus, transport investments
for their amortization must consider the lifespan of the concerned mode
or infrastructure. In general, transport technology can be linked to
five major waves of economic development
where a specific mode or system emerged:
- Timing of the development varies as the impacts of transportation
can precede, occur during or take place after economic development.
The lag, concomitant and lead impacts make it difficult to separate
the specific contributions of transport to development. Each case
study appears to be specific to a set of timing circumstances that
are difficult to replicate elsewhere.
- Types of impacts vary considerably. The spectrum of impacts
range from the positive through the permissive to the negative.
In some cases transportation impacts can promote, in others they
may hinder economic development in a region. In many cases, few,
if any, direct linkages could be clearly established.
4. Transport as a Factor of Production
Contemporary trends have underlined that economic development has
become less dependent on relations with the environment (resources)
and more dependent on relations across space. While resources remain
the foundation of economic activities, the commodification of the economy
has been linked with higher levels of material flows of all kinds. Concomitantly,
resources, capital and even labor have shown increasing levels of mobility.
This is particularly the case for multinational firms that can
benefit from transport improvements
in two significant markets:
- Seaports. Linked with the early stages of European expansion
from the 16th to the 18th centuries. They supported the development
of international trade through colonial empires, but were constrained
by limited inland access.
- Rivers and canals. The first stage of the industrial
revolution in the late 18th and early 19th centuries was linked
to the development of canal systems in Western Europe and North
America, mainly to transport heavy goods. This permitted the development
of rudimentary and constrained inland distribution systems.
- Railways. The second stage of industrial revolution in
the 19th century was intimately linked to the development and implementation
of rail systems, some transcontinental, enabling a more flexible
inland transportation system.
- Roads. The 20th century saw the development of road transportation
systems and automobile manufacturing. Individual transportation
became a commodity available to the masses, especially after the
Second World War. This process was reinforced by the development
of national highway systems.
- Airways and information. The later part of the 20th century
saw the development of global air and telecommunication networks
in conjunction with the globalization of economic activities. New
organization, control and maintenance capacities were made possible.
Electronic communications have become consistent with transport
functions, especially in the rapidly developing realm of logistics
and supply chain management.
A common fallacy in assessing the importance and impact of transportation
on the economy is to focus only on transportation costs, which tend
to be relatively low (5 to 10% of the value of a good). Transportation
is an economic factor of production of goods and services, implying
that relatively small changes can have substantial impacts in on costs,
locations and performance. An efficient transport system with modern
infrastructures favors many economic changes, most of them positive.
It provides market accessibility by linking producers and consumers.
The major impacts of transport on economic processes can be categorized
- Commodity market. Improvement in the efficiency with
which firms have access to raw materials and parts as well as to
their respective customers. Thus, transportation expands opportunities
to acquire and sell a variety of commodities necessary for industrial
and manufacturing systems.
- Labor market. Improvement in the access to labor and
a reduction in access costs, mainly by improved commuting (local
scale) or the use of lower cost labor (global scale).
Transport also contributes to economic development through
job creation and its derived economic
activities. Accordingly, a large number of
direct (freighters, managers, shippers)
and indirect (insurance, finance, packaging, handling, travel agencies,
transit operators) employment are associated with transport. Producers
and consumers take economic decisions on products, markets, costs, location,
prices which are themselves based on transport services, their availability,
costs and capacity.
While many of the economic impacts of transportation are positive,
there are also significant negative impacts that are assumed by individuals
or by the society in one way or another. Among the most significant
- Geographic specialization.
Improvements in transportation and communication favor a process
of geographical specialization that increases productivity and spatial
interactions. An economic entity tends to produce goods and services
with the most appropriate combination of capital, labor, and raw
materials. A given area will thus tend to specialize in the production
of goods and services for which it has the greatest advantages (or
the least disadvantages) compared to other areas as long as appropriate
transport is available for trade. Through geographic specialization
supported by efficient transportation, economic productivity is
promoted. This process is known in economic theory as comparative
- Large scale production. An efficient transport system
offering cost, time and reliability advantages permits goods to
be transported over longer distances. This facilitates mass production
through economies of scale because larger markets can be accessed.
The concept of “just-in-time”
has further expanded the productivity of production and distribution
with benefits such as lower inventory levels and better responses
to shifting market conditions. Thus, the more efficient transportation
becomes, the larger the markets that can be serviced and the larger
the scale of production.
- Increased competition. When transport is efficient, the
potential market for a given product (or service) increases, and
so does competition. A wider array of goods and services becomes
available to consumers through competition which tends to reduce
costs and promote quality and innovation. Globalization has clearly
been associated with a competitive environment that spans the world.
- Increased land value. Land which is adjacent or serviced
by good transport services generally has greater value due to the
utility it confers to many activities. In some cases, the opposite
can be true if related to residential activities. Land located near
airports and highways, near noise and pollution sources, will thus
suffer from corresponding diminishing land value.
The emission of pollutants related to transport activities has a wide
range of environmental consequences that have to be assumed by
the society, more specifically on four elements:
- Mobility gaps. Since mobility is one of the fundamental
components of the economic benefits of transportation, its variations
are likely to have substantial impacts on the opportunities of individuals.
Mobility needs do not always coincide due to several factors, namely
the lack of income, lack of time, lack of means and the lack of
access. People’s mobility and transport demands thus depend on their
socioeconomic situation. The higher the income, the higher the mobility,
which may give rise to substantial mobility
gaps between different population groups. Gender gaps exist
in mobility as women tend to have lower incomes. Mobility gaps are
particularly prevalent for long distance travel. With the development
of air transport, a segment of the global population has achieved
a very high level of mobility for their business and leisure activities,
while the great majority of the global population has little mobility.
This issue is expected to become more acute as the population of
many advanced economies is aging rapidly, which implies
that access to mobility will not be an income issue but an age issue.
By 2020, about 10% of the global population (719 million) will be
over 65 while by 2050 it will be 16% (1,492 million).
- Costs differences. Locations that have low levels of
accessibility, such as landlocked countries, tend to have higher
costs for many goods (sometimes basic necessities such as food)
as most have to be imported, often over long distances. The resulting
higher transport costs inhibit the competitiveness of such locations
and limits opportunities. Consumers and industries will pay higher
prices, impacting on their welfare (disposable income) and competitiveness.
- Congestion. With the increased use of transport systems,
it has become common for parts of the network to be
used above design capacity. Congestion is the outcome of such a
situation with its associated costs, delays and waste of energy.
Distribution systems that rely upon on-time deliveries are particularly
susceptible to congestion.
- Accidents. The use of transport modes and infrastructure
is never entirely safe. Every motorized vehicle contains an element
of danger and nuisance. Due to human errors and various forms of
physical failures (mechanical or infrastructural) injuries, damages
and even death occur. Accidents tend to be proportional to the intensity
of use of transport infrastructures which means the more traffic
the higher the probability for an accident to occur. They have important
socioeconomic impacts including healthcare, insurance, damage to
property and the loss of life. The respective level of safety depends
on the mode of transport and the
speed at which an accident
occurs. No mode is completely safe but the road remains the most
dangerous medium for transportation, accounting for 90% of all transport
accidents on average (Statistics
for OECD countries). At the global level about 1.3 million
people died in road accidents in 2010 in addition to 50 million
injuries. China has one of the highest car accident
death rates in the world, with more than 110,000 fatalities per
year (300 per day), a factor mainly due to recent growth in vehicle
- Air quality. Atmospheric emissions from pollutants produced
transportation, especially by the internal combustion engine, are
associated with air pollution and, arguably, global climate change.
Some pollutants (NOx, CO, O3, VOC, etc.) can produce respiratory
troubles and aggravate cardiovascular illnesses. In urban regions,
about 50% of all air pollution emanates from automobile traffic.
- Noise. A major irritant, noise can impact on human health
and most often human welfare. Noise can be manifested in three levels
depending on emissions intensity; psychological disturbances (perturbations,
displeasure), functional disturbances (sleep disorders, loss of
work productivity, speech interference) or physiological disturbances
(health issues such as fatigue, and hearing damage). Noise and vibration
associated with trains, trucks, and planes in the vicinity of airports
are major irritants.
- Water quality. Accidental and nominal runoff of pollutants
from transport such as oil spills, are sources of contamination
for both surface water and groundwater.
- Land take. Transport is a
large consumer of
space when all of its supporting infrastructure and equipment
are considered. Furthermore, the planning associated with these
structures does not always consider aesthetic values as is often
the case in the construction of urban highways. These visual impacts
have adverse consequences on the quality of life of nearby residents.