This morning the Government unveiled "the biggest road-building programme in 40 years", as part of a package of infrastructure schemes intended to drive the UK’s long-term economic
development. Road-building is often opposed
on environmental grounds, and those costs are clear. But does it produce
any economic gains? Surprisingly, we have very little robust evidence - until now.
SERC’s research suggests that roads can produce economic benefits – at
least locally. In the first rigorous studies to look at the effects of UK road
transport improvements on employment,
output and wages,
we find that road-related accessibility improvements
between 1998 and 2007 increased local employment and raised wages.
Back-of-the-envelope calculations suggest that £1bn of road improvements could
create around 2000 jobs in the affected areas.
Road networks dominate transport infrastructure in
most countries, including the UK. According to official
transport statistics, in 2010 91% of passenger transport and around 68% of
freight transport was by road. Road traffic has increased steadily since the
50s, up to around 240 billion vehicle miles in 2011. And most of this traffic
is concentrated in the major roads network. So it’s not surprising that a substantial
amount of UK public spending is devoted to roads: around £1
billion, or 44% of total transport spending in 2010/11. An important slice of
this expenditure is for new road links (since 2000, over 300
kilometres of new roads in England alone).
In theory, transport improvements decrease transportation costs, improve
access to markets, foster economic integration, stimulate competition, generate
agglomeration economies and a number of other ‘wider’ economic benefits. This
is why transport improvements are frequently
proposed
as a strategy for economic growth, integration and local economic development.
But for economies with well-developed transport networks like the UK, there is
little good evidence on the extent of the gains that result from additions to
the existing network. Although road improvements are routinely subject to
appraisal - predicting the economic benefits before the roads are built - they
have not historically been subject to any evaluation in order to work out whether
these benefits actually materialised!
SERC’s research provides some of the first hard evidence. We link data
on 31 major new road construction schemes between 1998 and 2007 to
administrative data on businesses and workers. There are major challenges when
evaluating the economic effects of road construction.
The first one is how to
capture the effect of new roads. We do this using an index of employment
‘accessibility’ that estimates the number of workers that can reach a location,
per unit of travel time, using optimal routes along the major road network.
When new links are added to the network, optimal travel times decrease and
employment accessibility increases, but by different amounts according to where
a place is in relation to the existing road network, the new road links and
major centres of employment.
The second major challenge comes from the fact that new roads are not
placed randomly, but are targeted specifically to improve traffic flows,
decrease congestion or improve connectivity. For this reason, to measure the
effects of increases in accessibility we cannot simply compare places that had
new links to places that did not. Instead, we look only at places which that
are close to a new road scheme, estimating the effects from the subtle local
changes in accessibility that occur within a 20km radius.
*
Linking these accessibility changes to firm level data on employment and
output allows us to estimate how transport affected local production and
employment. Firstly we find that places (electoral wards) that experienced
accessibility improvements saw employment gains. A 10% increase in
accessibility leads to a 3-4% increase in plants and employment.
These gains
come about through an increase in the number of businesses, particularly in the
service sector, though surprisingly firms already operating in the area shed
workers. An explanation for existing firms cutting employment is the observed
wage increases in response to the accessibility changes (evident in other
results based on worker data), coupled with improvements in productivity
(output per worker). These wage and output effects are of a similar to the
effects on employment: a 10% increase in accessibility results on an increase
in labour productivity and average wages of around 2.5-3%.
*
So will road-building set the UK on the ‘road to recovery’? Overall, the
economic benefits are relatively small. We also need to be careful in
interpreting these changes as gains to the national economy. To some extent,
jobs may be displaced from other areas, although our evidence indicates this is
not the primary channel. Also, we are learning about the potential impacts of
transport improvements from very localised changes, and abstracting from
changes induced by local road schemes in more distant places. Given how much
political attention infrastructure projects attract, though, our work opens the
way for more research in an area where proper evaluation is badly needed.
