International Transport Forum
Transport infrastructure
and economic growth
Dr Tim Leunig
Back to basics…
• Y=f(K,L)
• Diminishing marginal returns
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Violation 1
• A new technology that is so big, it saves a
colossal amount of time
• Harry Potter’s flu powder
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Invention of the railway
• c. 25mph (40kmph) in the nineteenth
century
• Compares with 2.5 mph (4kmph) walking or
by cart
• London to Brighton was 3 days before,
became 2 hours afterwards
• Used by lots of people
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Railways were used
Journal of Economic History, 2007
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Modern equivalent
• Low cost airlines replacing coaches?
• See Golson and Leunig on benefits of point
to point service (just started!)
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The steamship for goods
• The British cotton industry – biggest in the
world, 500k employed in cotton processing,
1.2m in textiles
• All raw cotton is imported, 80% of cotton
cloth exported
• Nineteenth century English population
growth outstrips Ireland’s. Ireland starves,
and England gets rich…
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Violations 2
• Completing a network
• Aschauer and American highways
• Digging the last metre of the channel tunnel
was very worth while
• Repairing landslipped roads in China,
Borneo, etc
• NOT Beeching – most journeys are point to
point
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LatAm railways
• Complete the “LatAm farm – European
table” chain
• Brazilian & Mexican railways have social
savings of c. 33% 1913 (Summerhill, 2005,
Coatsworth, 1979).
• The figure for Germany is <5% (Gremdling
1983)
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Prediction
• A transformational infrastructure project will
usually transform a factor price
• Prior to the railways and the steam ship,
land in Argentina’s interior was worthless.
• Ditto the American midwest with canals and
railways
• Obvious parallels with international trade
literature – factor price equalisation
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Suggestion
• If you claim a project will be transformational,
state the factor price you predict will change.
• Will a new area of settlement open up, raising
land prices?
• Will a new group of people “get connected”,
raising wages?
• Will prices fall as new supplies come on
stream?
• What quantity of the item is sold? Is it a lot?
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Modern day example 1
• Docklands
• The land was worth very little c. 1980.
• Now it is worth a lot (although not as much
as the City)
• Prior to the DLR & JLE, land in Docklands
was a poor substitute for land in the City.
• Afterwards it was a better substitute, and
prices converged
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Why did it work?
• Because the City was bursting at the seams
• Finance was growing, rents were VERY
high, wages were high
• It was a good bet as an industry to expand
• Up or out – we choose out, although since
then have supplemented out with up
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Comparison with Sheffield
•
•
•
•
Supertram is the same length as Docklands
Built at the same time
Passenger miles = 1/6 of Docklands
Sheffield is not “land constrained” like the
City
• No need to go up or out!
• Therefore transformed nothing
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Modern day example 2
• Prior to A8 accession, UK and Polish wages
were very different.
• Lots of Poles came to work in London, and
presumably wages converged a bit
• Ryanair helped, but the coach would have
been sufficient
• It was deregulation of labour markets that
caused price convergence, not transport
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Modern day 3 Øresund Bridge
•
•
•
•
•
5.3km
$8bn
36m pas/year
40 Euros
Only 1.25m
people live in
Skåne
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Violations 2
• Agglomeration economies
• The post, telephone, fax, email, skype,
videoconferencing etc are poor substitutes
for proper face to face interaction.
• 1+1=3
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Historically
• The railways were revolutionary
• Did they radically change the location of
industry?
• No
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Journal of Economic History, 2007
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To think about
• The UK & French economies are > $2tr
• NOTHING can transform a $2tr economy
• (well, not upwards!)
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For govt to think about 1
• High prices
• If the price of something is very high, can
you expand it, or allow it to expand?
• Silicon Valley vs Oxford and Cambridge
• O & C land values suggest that they should
grow (£4m/ha with residential planning
permission)
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For govt to think about 2
• Low prices
• If people in one place within the country are
paid less than in another, can you connect
them? Or allow them to move?
• If your people with skill level X are paid less
than elsewhere, investigate why. It may be
transport and lack of agglomeration (but not
likely)
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For govt to think about 3
•
•
•
•
Go to NY, London and LA
Transport is pretty rubbish
Yet they are successful
Don’t overemphasise transport
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Is it transport that:
• Makes Reading richer than Rochdale? (no)
• Makes Switzerland richer than Swaziland
(no)
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Questions?
Comments?