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
Because of its intensive use of
the transport sector is an important component of the economy
impacting on economic development and on the welfare of
populations. A relation between the quantity and quality
of transport infrastructure and the level of economic development
is apparent. 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 and lower quality
of life. At the aggregate level, efficient transportation
reduces costs in many economic sectors, while inefficient
transportation increases these costs. In addition, the impacts
of transportation are not always intended and can have unforeseen
or unintended consequences. For instance congestion is
often an unintended consequence in the provision of free
or low cost transport infrastructure to the users. Transport
also carries an important social and environmental load,
which cannot be neglected. Assessing the economic importance
of transportation requires a
of the types of impacts it conveys. These involve core
(the physical characteristics of transportation),
operational and geographical dimensions:
Mobility 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
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 disburses wages, invests
capital, generates income and provides taxation
revenue. The economic importance
of the transportation industry can thus be assessed
from a macroeconomic and microeconomic perspective:
- Core. The most fundamental impacts of transportation
relate to the physical capacity to convey passengers
and goods and the associated costs to support this mobility.
This involves the setting of routes enabling new or
existing interactions between economic entities.
- Operational. Improvement in the
time performance, notably in terms of reliability, as
well as reduced loss or damage. This implies a better
utilization level of existing transportation assets
benefiting its users as passengers and freight are conveyed
more rapidly and with less delays.
- Geographical. Access to a wider
market base where economies of scale in production,
distribution and consumption can be improved.
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). Another important
geographical impacts concerns the influence of transport
on the location of activities.
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 (fuel, supplies, maintenance)
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
- At the macroeconomic level (the importance
of transportation for a whole economy), transportation
and the mobility it confers are linked to a level of
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
10% and 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.
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. Thus, although transportation is
infrastructure intensive activity, these hard assets must be
supported by a array of soft assets, namely management
and information systems. Decisions have
to be made to use and operate transportation systems.
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 no single transport mode 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
routes established a rudimentary system of distribution
and transactions that would eventually be expanded by long
maritime shipping networks and the setting of the first
multinational corporations managing these flows. 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 played a catalytic role in these migrations,
transforming the economic and social geography of many nations.
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. The goal to capture resource and market opportunities
was a strong impetus in the setting and structure of transport
networks. More recently, port development, particularly
container ports, has been of strategic interest as a tool
of integration to the global economy as the case of
There is commonly a direct relation between
foreign trade and container port volumes.
Due to demographic pressures and increasing urbanization,
developing economies are characterized by a mismatch between
limited supply and growing demand for transport infrastructure.
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 economies,
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 unreliable. 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
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
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 had, which can lead to capital
misallocation. The most common reasons for the declining
marginal returns of transport investments are:
- Direct impacts. The outcome of improved capacity
and efficiency where transport provides employment, added
value, larger markets as well as time and costs improvements.
- Indirect impacts. The outcome of improved accessibility
and economies of scale. 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).
- Induced impacts. The outcome of the
economic multiplier effects where the price of commodities,
goods or services drop and/or their variety increases. 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
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. In some circumstances transport investments
appear to be a catalyst for economic growth while in others,
economic growth puts pressures on existing transport infrastructures
and incite additional investments. At start there are different
impacts on the transport providers (transport companies)
and the transport users. There are several layers of activity
that transportation can
from 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:
- High levels of existing infrastructure.
In a context of high level of accessibility and transportation
networks that are already extensive, further investments
usually result in marginal improvements. This means
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 already present. Additional investments can
thus have limited impact outside convenience.
- Economic changes. As economies
develop, the nature of their economies tends to shift
from the primary (resource extraction) and secondary
(manufacturing) sectors towards services. These sectors
rely on different transport systems. While an economy
depending on manufacturing will rely on road, rail and
port infrastructures, a service economy is more oriented
towards the efficiency of logistics and urban transportation.
In all cases transport infrastructure are important,
but their relative importance in supporting the economy
- Economies of agglomeration. Due
to clustering and
several locations develop advantages that cannot be
readily reversed through improvements in accessibility.
Transportation can be a factor of concentration and
dispersion depending on the
context. Less accessible regions thus do not necessarily
benefit from transport investments if they are embedded
in a system of unequal relations.
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
- 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 as follows:
- 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 are:
- 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
- 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. 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 ownership.
- 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
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.