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Productive Highway Capital Stocks and the Contribution of Highways to Growth in GDP
Volume I
Barbara M. Fraumeni

Under subcontract to Battelle Memorial Institute
Subcontract no. 208937 to work order BAT-03-21
for the
Federal Highway Administration
U.S. Department of Transportation
October 2007

PDF Version of This Report [146KB] PDF

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Introduction

The study reaches two conclusions using several different national income accounting measures:

National income accounting measures do not include spillovers, multiplier effects, or the use of highways by other than business or the government. Accordingly, the contribution estimates produced in the report are small compared to many alternative estimates. However, they can be directly compared to Bureau of Economic Analysis (BEA) contribution estimates.

This is the first time the contribution of highways to economic growth has been estimated using this method. In a report released in January of 1999, Barbara Fraumeni estimated productive highway capital stocks from 1929-1995.1 The current study presents revised and updated the productive highway capital stocks through 2005 and estimated the contribution of highways to economic growth.

The study presents two conclusions about the revised and updated productive highway capital stocks:

An experimental bridge stock is estimated. It results in a small, although significant, difference in the rate of growth of the productive highway structure capital stock.

Volume II of this report is a "cookbook" which describes in detail how the stock and contribution estimates are constructed.2

Productive Highway Capital Stock Estimates

The productive highway capital stocks measure potential productive capacity. There is no stock utilization adjustment except in construction of pavement curves. (Utilization and other factors might affect the rate of return to the stock.)

Highway capital outlays are disaggregated into:

by

and by

The split of outlays differs year-by-year reflecting changes in how capital outlays are spent.

Net efficiency pavement curves, constructed from pavement curves, measure how productive pavements could be. This productive capacity is reduced if pavement conditions reduce speed or increase motor vehicle operating cost.

The report constructed productive highway capital stocks with a perpetual inventory method. State and Local Systems have a 1921 benchmark. Interstates have a 1958 benchmark from highways transferred from the State System. ROW has an infinite life; therefore zero depreciation. Pavement has a design life of 20 years and depreciation from the net efficiency curves. Grading has an 80-year life and one-Hoss-Shay depreciation. Structures have a life of 50 years and a geometric depreciation rate of 1.82 percent. (The structure assumptions are the BEA's assumptions for government non-defense, non-industrial buildings.)

The following graphs the productive highway capital stocks for the Interstate, Non-interstate State, and Local Systems. By 2005, in 2000 dollars the total stock is close to $1.5 trillion.

Productive Capital Stocks
Interstate, Non-interstate State & Local Systems
Billions of 2000$s
1921-2005
Line Chart. Showing increase in productive capital stocks for Interstate System; Non-interstate State System; and Local System between 1921 and 2005.  In 2000 dollars.  For Interstate System, no capital stocks are shown until 1957, after which stocks increase sharply to 300 billion dollars in 1977, and then increase gradually to 400 billion in 2005.  For Non-interstate State System, capital stocks start at about 50 billion dollars in 1921, increase, level off at around 120 billion dollars between 1941 and 1949, and then trend upward to a total of 700 billion dollars in 2005.  For Local System, capital stocks start at just over 50 billion dollars in 1921, increase, level off at around 150 billion dollars between 1940 and 1961, and then increase to 400 billion dollars in 2005.  Despite later initial investment, the level of Interstate System investment in 2005 matched the level of Local System investment in 2005, at 400 billion dollars; at that time, the Non-interstate System investment level was almost twice that, at 700 billion dollars.

Contributions

The report estimate three types of contributions:

Each of these contributions is an approximate contribution.

Approximate contributions are a weighted rate of growth. The weights are nominal shares of:

The rates of growth are rates of growth of 2000 dollars for:

The first listed weight is multiplied times the first listed rate of growth to produce the first listed contribution; the second listed for the second, and so forth. In the majority of years, the weights and the rates of growth are small; accordingly the contributions are small.

Highway capital outlays in 2000 dollars are highly variable and their rate of growth is less than the rate of growth of GDP. The following graph begins in 1950 as in some earlier years the rate of growth of highways capital outlays are almost 70 percent and -90 percent, swings that hide more normal variations.

Highway Capital Outlay and GDP in 2000$s
Rates of Growth 1950-2005
Line Chart. Showing rates of growth of Highway Capital Outlay and GDP in 2000 dollars between 1950 and 2005.  Growth rate of Highway Capital Outlay is highly variable, with a record high growth rate of 28 percent in 1956, a low growth rate of -20 percent in 1975, and another high of 17 percent in 1986.  Growth rate of GDP is less variable, fluctuating between a high of 9 percent in 1950 and a low of -2 percent in 1983; these fluctuations for GDP become less extreme after 1986, when they level off at around 3 or 4 percent.

Over the period shown the average annual rate of growth of highways capital (2000 dollars) outlays is 2.5 percent and the annual rate of growth of GDP is 3.5 percent.

Nominal capital input is equal to the sum of net return and depreciation. Net return is equal to the net own rate of return times lagged capital stock. For highways, net own rate of returns for all government (4.4 percent) and all private assets (11 percent) are derived from BEA's recent report on R&D.3 The study estimates three rate of return scenarios:

BEA and the Bureau of Labor Statistics (BLS) assume that the net own rate of return for all government assets is zero. Accordingly the estimated capital input and gross output contributions, GDP and U.S. gross output are adjusted upwards. (BLS is the source for the U.S. gross output data.)

Highway gross output is equal to the sum of highway capital input and other than capital outlays on highways.

The following graphs the shares in the weighted rate of growth contribution formula.

Nominal Share Comparison 1958-2005
Line Chart. Showing nominal shares of 7 categories between 1958 and 2005. Six of these 7 categories follow a general trend of decreasing in nominal share from 1958 levels, peaking in 1975, decreasing again and then peaking again in 1983, and then leveling out between 1994 and 2005.  These general trends, from the highest in share to the lowest and expressed by their 1975 peak and their 2004 ending share, are: Capital Input for Private ROR Only, at 2.8 percent in 1975 and 1.8 percent in 2005; Capital Input for Government and Private ROR, at 2.4 percent and 1.5 percent; Gross Output for Private ROR Only, at 2 percent and 1.3 percent; Gross Output for Government and Private ROR, at 1.4 percent and 1.2 percent; and Gross Output for Government ROR Only, at 1.2 percent and 0.9 percent.  Capital Outlay is the seventh category, and does not follow this trend pattern. Its share starts at 1.4 percent in 1958 and decreases until 1982, where it holds at around 0.6 percent through 2004.

The table below shows that the rate of growth of GDP is higher than any measure of the growth in highways (all in 2000 dollars). The table and graph below begin in 1959 as all measures are available for these years.

Percentage Average Rates of Growth 1959-2005
Capital Outlay 1.28
Capital Input (Capital Stock) 3.00
Gross Output
Government Net Own ROR only
1.85
Gross Output
Government & Private Net Own ROR
2.17
Gross Output
Private Net Own ROR Only
2.25
GDP 3.34

The final chart graphs the highway contribution estimates. The analysis excludes the contribution of capital outlay to GDP growth from the graph because its high degree of variability makes the graph difficult to read.

Contribution Comparison 1959-2005
Excluding the Contribution of Capital Outlay
Line Chart.  Showing contributions between 1959 and 2005 for 7 categories.  Data excludes the contribution of capital outlay.  All categories follow a general trend of increasing after initial investment to a peak around 1967, then decreasing until about 1982, and then fluctuating through 2005.  The category Capital Input for Private ROR Only and the category Capital Input for Government and Private ROR peak around 0.11 percent in 1967 and end at 0.03 percent in 2005.  The category Gross Output for Private ROR Only and the category Gross Output for Government and Private ROR peak around 0.08 percent in 1966 and fluctuate around 0.02 percent approaching 2005.  The category Gross Output for Government ROR Only has a peak at 0.05 percent in 1966, and fluctuates around 0.02 percent approaching 2005.  The category Capital Input for Government ROR Only peaks in 1962 at 0.06 percent, an earlier peak than shown for the other categories, and levels off around 0.02 percent approaching 2005.

The contribution of highway capital input to adjusted GDP using a private net own rate of return for all assets is largest in most years. The contribution of highway gross output to adjusted U.S. gross output using a government net own rate of return for all years is smallest in most years. In all years the contributions are small except in the few years when the rate of growth of capital outlays is high. (These years are not shown.) The contribution estimates are small because the shares and rates of growth are small.


1 Fraumeni, Barbara M. Productive Highway Capital Stock Measures, under subcontract to Battelle Memorial Institute, Contract DTFH61-97-C-00010, BAT-98-006, Federal Highway Administration, Department of Transportation, January 1999.
2 Barbara M. Fraumeni, Productive Highway Capital Stocks and the Contribution of Highways to Growth in GDP, Volume II, Documentation, under subcontract to Battelle Memorial Institute, subcontract no. 208937 to work order BAT-03-21, Federal Highway Administration, U.S. Department of Transportation, October 2007.
3 Okubo, Sumiye, Carol A. Robbins, Carol E. Moylan, Brian K. D. Sliker, Laura I. Schultz, and Lisa S. Mataloni, R&D Satellite Account: Preliminary Estimates," September 28, 2006.
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