Infrastructure Mega-Projects in an Emerging Economy: European Integration Vs Isolation



Infrastructure Mega-Projects in an Emerging Economy: European Integration Vs Isolation

Authors

Artem Khudenko, University Of Liverpool, P. R. Drake, University Of Liverpool

Description

This paper is dedicated to the appraisal of infrastructure mega-projects under risks inherent to the developing countries of Eastern Europe, in the prevailing context of assessing intranational vs. transnational alternatives of the project scope.

Abstract

This paper is dedicated to the appraisal of infrastructure mega-projects under risks inherent to the developing countries of Eastern Europe, in the prevailing context of assessing intranational vs. transnational alternatives of the project scope. The nation’s prosperity level is investigated as a key factor affecting economic feasibility of projects delivering country-wide public transport infrastructures. We identify various macro- and microeconomic parameters most critical to the project’s net present value, including the average wage rate and household income, generalised cost of travel and network construction cost, and incorporate them into a passenger demand/supply projection model. To empirically evaluate the impact of risks, impeding the infrastructure construction progress and further operation, we formulate a technique wherein the parameters affected by economic volatility are represented as Wiener-based continuous stochastic processes. This technique provides an optimal strategy for the infrastructure expansion and integration with European networks, in terms of both the return on investments and minimisation of associated risks.
The proposed model is then applied to the case of a developing Ukrainian high-speed railway and its hypothetical, not envisaged by the government, integration with the Pan-European corridors, whilst examining economic and geo-political prerequisites and possible scenarios of modal competition and future demand shifts. As an outcome, we have shown the advantages of planning infrastructure developments on a nation-wide scale rather than considering the individual routes/links as independent investment projects. Moreover, our findings from experimentation with the model indicate that a transnational dimension of large-scale public infrastructures may noticeably improve financial efficiency of the related strategic investments and decrease accompanying risks, especially in the economies with smaller household incomes. We have also demonstrated that a potential re-orientation of national infrastructures from supplying a domestic market only towards the cross-border and transit travel priorities could yield non-marginal financial and economic benefits. Especially in the case of smaller countries where tight borders hamper building a network of such a scale that would substantially spread risks, the need for transborder infrastructure integration is obvious. All the above findings represent important implications for the public finance and European integration policies in developing economies of Eastern Europe.

Publisher

Association for European Transport