4
Transportation Indicators of Economic Growth

RELATIONSHIP BETWEEN TRANSPORTATION AND ECONOMY

Every day, governments, businesses, and individuals make many transportation investments and decisions about the use of transportation. Location and development decisions are also heavily influenced by transportation. People often use transportation data in making these decisions. Are there any general indicators of transportation and economic growth that could be developed systematically and that would be generally helpful to all parties making transportation-related decisions?

The relationships between transportation and the economy are very complex and poorly understood. Transportation is a massive enterprise with substantial direct and indirect effects on economic productivity and economic growth. Transportation industries—the provision of transportation services, the manufacture of vehicles, and the construction of infrastructure—are major economic activities in themselves. Transportation is a cost, to a greater or lesser extent, of virtually every other good or service in the economy. Transportation is an enabler of economic activity and a facilitator of international trade. Transportation is a measure of economic activity: in many instances, it may be a leading indicator, inasmuch as physical movements precede financial transactions. Transportation is a reflection of economic activity, inasmuch as products must be moved to markets. Some of these relationships are clearly circular: transportation affects



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Key Transportation Indicators: Summary of a Workshop 4 Transportation Indicators of Economic Growth RELATIONSHIP BETWEEN TRANSPORTATION AND ECONOMY Every day, governments, businesses, and individuals make many transportation investments and decisions about the use of transportation. Location and development decisions are also heavily influenced by transportation. People often use transportation data in making these decisions. Are there any general indicators of transportation and economic growth that could be developed systematically and that would be generally helpful to all parties making transportation-related decisions? The relationships between transportation and the economy are very complex and poorly understood. Transportation is a massive enterprise with substantial direct and indirect effects on economic productivity and economic growth. Transportation industries—the provision of transportation services, the manufacture of vehicles, and the construction of infrastructure—are major economic activities in themselves. Transportation is a cost, to a greater or lesser extent, of virtually every other good or service in the economy. Transportation is an enabler of economic activity and a facilitator of international trade. Transportation is a measure of economic activity: in many instances, it may be a leading indicator, inasmuch as physical movements precede financial transactions. Transportation is a reflection of economic activity, inasmuch as products must be moved to markets. Some of these relationships are clearly circular: transportation affects

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Key Transportation Indicators: Summary of a Workshop economic conditions, and economic conditions influence transportation. Furthermore, all of these relationships shift with changes in technology, economic development, geographic changes, and many other factors. Pioneering work by Ishaq Nadiri, Randall Eberts, David Aschauer, Alicia Munnell, Dale Jorgenson, and others has contributed important understandings about these relationships, but we are far from having an accepted, comprehensive model of the key relationships and how they work. As a result, any indicator of transportation and economic growth poses difficult issues of interpretation. Any index of transportation and economic growth must reflect this context of change and uncertainty. In making public policy, it would be very useful to know the value of an extra dollar invested in transportation. It would be useful to know where, geographically and modally, to invest that dollar. It would also be useful to be able to track the transportation sector’s contribution to the gross domestic product (GDP). Consumers are probably most interested in price indexes—the price of gas, the price of cars, or the fares for different modes. Financial and business interests are interested in productivity measures. CURRENT AND POTENTIAL ECONOMIC INDICATORS Indexes of accessibility, impedance, bottlenecks, or congestion may have great value, and these features are closely tied to the economic impact of transportation. The economic indicators subgroup did not explore such physical measures in depth, however, although they may warrant consideration as mobility indexes. Perhaps transportation capacity utilization could be the basis of an index. Manufacturing capacity utilization has proven to be a closely watched macro indicator, and a similar measure for transportation may prove useful as well. A good index should be simple, policy relevant, reliable, and timely. It is useful to compare several possible indexes in these respects. Table 4-1 compares these key attributes for seven indicators that the subgroup considered: Transportation prices (an index of the aggregate price of transportation service, possibly subdividable by mode or commodity), Transportation productivity (labor productivity or total-factor productivity), Contribution of transportation to economic growth,

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Key Transportation Indicators: Summary of a Workshop TABLE 4-1 Potential Transportation Indexes Index Policy Relevance Transportation prices (an index of the aggregate price of transportation service, possibly subdividable by mode or commodity) • International competitiveness • Sectoral impacts Transportation productivity (labor productivity or total-factor productivity) • Efficiency • Modal efficiency Contribution of transportation to economic growth (transportation sector value added relative to GDP) • Sectoral importance • Sectoral performance Logistics (transportation plus inventory) as a fraction of GDP • Efficiency of overall distribution Full-supply-chain distribution cost relative to GDP • Efficiency of overall distribution, sensitive to possible changes associated with e-commerce. Growth in transportation infrastructure relative to growth in the economy • Shifts in public attention to infrastructure investment Transportation capacity utilization • Efficiency • Adequacy of investment

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Key Transportation Indicators: Summary of a Workshop Simplicity Reliability Timeliness Relatively simple for a single mode, commodity, or routing; meaningful averages will require considerable effort to develop. Even if a definition of suitable aggregates to include in the index is determined, inclusion of quality changes may be difficult. The supporting data could be sampled and reported in close proximity to the period of coverage. Labor productivity indexes for major modes are now being computed by the Bureau of Labor Statistics. The reliability of existing labor productivity measures is diminished by noninclusion of quality changes; total-factor productivity measures are less reliable. The data needed to compute these measures could be processed to produce an index that is timely, but this would require collection of additional data. Relatively simple for freight transportation, for which the key data are available. Less simple for personal transportation activity. Freight data are probably reliable; personal consumption data are not. Some freight data, such as data on trains, are available in a timely fashion; other freight data, such as data on trucks, are not. Relatively easy to compute this very aggregate index. The components of this index are currently collected and reported in reliable data series. This index can be reported in a timely fashion. Complex and difficult to design and apply. Reliability will depend on the quality of component data, many of which will reflect private-sector operations and may be difficult to obtain. Timeliness is doubtful, given complexity and introduction of new data requirements. Complex to define and make into an operational index. Reliability could be a problem because good data are not currently available on some components. Timeliness is doubtful. Complex to define and make into an operational index. Aggregate index may not reflect key modal and geographic conditions. Timeliness is doubtful.

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Key Transportation Indicators: Summary of a Workshop Logistics (transportation plus inventory) as a fraction of GDP, Full-supply-chain distribution cost relative to GDP, Growth in transportation infrastructure relative to growth in the economy, and Transportation capacity utilization. Each of these indicators reflects a different aspect of transportation and the economy, and there is no clear consensus at this stage regarding the framework that should apply. At the most aggregate level—the relationship between transportation investment and economic growth—there is no agreed-on theory that can be drawn on. The production function literature has attempted to take the national income accounts, which have traditionally been modeled in terms of labor and private capital, and extend them to include public capital, such as transportation investment. Similar extensions have been done using cost function models. The results are important and suggestive of a relationship, but any particular formulation is tenuous. At less aggregate levels, such as modal productivity or prices, the audience for each indicator has its own issues and needs. Much of the expenditure on transportation—as much as 70 percent— is for business-to-business services or goods. GDP accounts do not include business-to-business activity, so any index that relates gross transportation activity to the national economy should either net out the business-to-business portion and use GDP as the base, or, if this is not done, use gross output as the base. Otherwise, the index will exaggerate the financial importance of transportation relative to other sectors. In considering the merits of different indexes, it is essential to begin to build a consensus about the applicable framework. Given the current state of understanding, it appears unlikely that this is possible with regard to the most fundamental issue: the relationship between transportation investment and economic growth. But governments, businesses, and people are nonetheless interested in transportation—how big it is, how productive it is, and how much they have to pay for it. In considering possible indictors relative to transportation and the economy, these specific concerns offer a possible practical first step. No index can give all audiences all the information, any more than the Consumer Price Index can address all the informational needs of buyers, retailers, and producers. To move forward in the consideration of indexes that might be of value in depicting economic aspects of transportation, the BTS will need to identify the audiences that the indicator is designed to serve and postulate indexes, like those in Table 4-1,

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Key Transportation Indicators: Summary of a Workshop that might serve these audiences. BTS should assess the policy relevance, difficulty, reliability, and timeliness of potential indexes, and try to anticipate the implications of publishing the index. Relative to mobility or safety indicators, any indicator of economic performance and transportation will probably be less comprehensive in its coverage, but there appear to be enough potential valuable uses to continue the exploration.