Diminishing Returns of Transport Investments
A common fallacy in understanding and assessing the economic impacts of transport investments is the lack of consideration of the diminishing returns these investments can face. Three main geographical contexts in which similar transport investments can have different multiplying effects are identified:
  • High multiplying effects (A). In a context where there is limited existing infrastructure (an underdeveloped region for example), new investments usually have a high level of impact. They bring new forms of mobility and connectivity, as well as adding transport capacity in an area where it was previously limited. Specific opportunities that were beforehand not accessible become available. This can involve access to labor (or labor being able to access new employment), resources (more production) and markets (more consumption). Such high multiplying effects were observed in the early stages of the construction of the Interstate highway system in the United States in the 1950s and 1960s. For China, these multiplying effects were observed during the 1990s and early 2000s as many manufacturing activities began to be outsourced from North America and Europe.
  • Average multiplying effects (B). When there is an existing level of transport infrastructure, additional investments start to result in less benefits. Still, there are notable gains to be derived from better capacity, connectivity and reliability, which makes existing activities more productive and competitive. The regional transport systems starts to be organized along corridors of circulation, which are the focus of transport investments. Significant differences in regional connectivity are starting to emerge. The majority of developing countries are in this situation.
  • Low multiplying effetcs (C). In regional transportation systems that are mature, congested and long established, a core issue becomes infrastructure upgrade and maintenance, which can be highly capital intensive. Investments efforts thus do not yield significant changes in the connectivity and efficiency of the system, but are simply done to maintain, or improve marginally, its operating conditions. This is also taking place in a high cost environment (land and labor) that can also be subject to the pressures of several interest groups, imposing additional compliance and regulatory costs. As such, there are limited multiplying effects, but high cost investments must be made to ensure that the transport systems does not lose the capacity and reliability it conveys to the regional economy. Making transport infrastructure investments in this context and expecting significant multiplying effects is therefore fallacious. This low multiplying effect environment is mainly observed in the United States, Europe and Japan.
The impacts of transport investments are thus highly influenced by the geographical context they are taking place in. Inferring the impacts of transport investments across regions is therefore prone to fallacies if these regions have a different economic composition and level of accumulation of transport infrastructure.