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Toolbox for Regional Policy Analysis Report (2000)

Impact Methodologies - Economic Development

Impact Methodologies - Economic Development


Economic development impacts may be measured through job creation, total or per-capita personal income, business growth and attraction, business productivity, or other means. Transportation investments can provide economic development benefits by reducing the cost of transportation for businesses and by expanding the accessibility of firms to suppliers, labor, and consumer markets. Transportation investments can also induce businesses to locate in areas served by the investment. At the scale regional or national scale, productivity improvements resulting from transportation improvements can result in overall economic growth.

The primary determinants of economic benefits include:

When measuring economic impacts, it is important to distinguish growth impacts (a net benefit to the economy) from redistribution impacts (where activity is shifted from one location to another). Construction of a new highway, for example, may cause retail activities to locate at the highway's interchanges. This new development may not reflect an increase in total economic activity, however, but rather a shift in the location of the retail establishments following changes in traffic patterns.

Transportation, economic development, and land use form a three-way relationship since land use is driven by economic activity. Measuring or forecasting the impacts of alternative land use policies and development scenarios on economic activity, however, is an issue that has received relatively little attention. Development patterns may have economic implications through their impacts on transportation accessibility. At the same time, policies to channel the location of development to certain areas will have implications for the location and cost of various economic activities.

Forecasting Methods

Method 1. Econometric Models

Statistical methods such as multiple regression analysis are first used on time series and cross-sectional data to show the impact of investment on highways and fixed-guideway transit lines on regional job creation, income, and property values. The "elasticities" or "impact factors" found from those regressions are then applied to estimate the expected future impact of highways and transit investments on growth in those regions.

Method 2. Input-Output Models

Input-Output (I-O) models contain information on inter-industry relationships, including "multipliers" that are used to forecast impacts as the dollars spent on a transportation investment ripple through the economy. I-O models are well suited for measuring the impacts of expenditures for the construction and operation of transportation facilities. They can also be used with exogenous inputs to calculate how changes in accessibility and transportation costs induce changes in levels of economic activity. For example, if a highway's impact on tourism can be translated into expenditures per new tourist, these expenditures can be fed through an I-O model to measure impacts on the regional economy.

The following examples illustrate the application of I-O models to transportation investments:

Method 3. Macroeconomic and Demographic Simulation Models

Macroeconomic simulation models are integrated modeling systems that include both an I-O model and a production function. These model components are integrated, and allow for the researcher to calculate how changes in policy decisions will impact economic conditions. Unlike I-O models which are static and allow only a one-time snapshot of the impacts of a transportation investment, simulation models allow the researcher to track the regional economic impacts of an investment over time. Some models can also estimate how changes in business operating costs and household living costs affect regional business expansion and population growth.

Method 4. Integrated Economic and Land Use Models

Some land use models contain economic relationships, such as input-output matrices, as part of their underlying foundation. These models are capable of measuring the three-way relationship among transportation, land use, and the economy. At the heart of the MEPLAN model, for example, are input-output relationships that specify each sector's consumption from other sectors as well as its consumption of land and generation of trips by type. These models are typically used to measure forecast the distribution of economic activity within a region. Compared to an economic simulation model such as REMI, they are much more limited in their economic detail, as their primary purpose is to forecast land use changes rather than overall regional economic effects.

Examples of applications include:


Hagler Bailly (2000) contains a toolbox of software models for forecasting economic development impacts as well as user economic impacts (i.e., benefit-cost analysis). The toolbox also includes case studies of applications and a diagnostic tool to assist in choosing a model.

Cambridge Systematics (1998) includes a categorization, description, and case studies of a wide range of methods for forecasting the economic impacts of transportation projects. While the focus is on measuring the impacts of transit projects, the methods are generally applicable to highway and other transportation modes.

Transportation Research Record 1274 (1990) contains a number of articles resulting from a conference on identifying and measuring the impacts of transportation on economic development.

Updated: 8/26/2014
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