New Roads or Better Roads: a Productivity Puzzle - Evidence from OECD Member Countries



New Roads or Better Roads: a Productivity Puzzle - Evidence from OECD Member Countries

Authors

Md O Chaudhry, S Braathen, J Odeck, Molde University College, NO

Description

This study deals with the relation of investment in road infrastructure investment and economic growth with help of SFA. This study also highlights the importance of investment in maintenance of existing road network in OECD member states.

Abstract

Investments in transport infrastructure are considered to be one of the key impetuses for economic growth of nations. In the recent years many studies have been conducted to investigate the relation between government spending on transport infrastructure and regional or national growth of economies. Investment in roads is of particular importance especially in developing countries where the existing road network is not much developed. Therefore, it is assumed that investment in building new roads is a key to economic growth of the region. Meanwhile, same argument may not hold true in developed countries that already have a well-developed road infrastructure network. Therefore, a question can arise that whether it is investment in new road infrastructure which has significant impact on efficiency of nations or investment in the maintenance of existing road network. This issue is also important due to the fact that the amount of investment in the maintenance of road network by majority of the countries have increased tremendously during last decade. In transport economics literature, however, cross country comparison on the impact of transport infrastructure is virtually missing. Thus it is hard to make a general statement regarding the relation between transport infrastructure investment and economic growth.

This paper has the objective of supplementing and widening transportation research on the impact of transport infrastructure particularly investment in road infrastructure (new and maintenance) on the efficiency of nations of the world. The performance of nations (i.e., efficiency) is estimated using the well-known Stochastic Frontier Analysis (SFA) to efficiency measurement. The approach has two steps. In the first step, efficiency of nations is calculated with GDP as the output and labor and capital as inputs. While in the second stage, factors thought to influence (in)efficiency i.e. the level of investment in new roads and maintenance of existing roads along with the investment in railways are regressed on the (in)efficiency scores attained in the first stage. The results obtained are helpful in making inferences regarding the impact of transportation spending on growth. Furthermore, the relative significance of investment in new roads and investment on the maintenance of the existing roads can be observed.

The data is for the period 1998-2006 and is comprised of 44 developed and developing countries (OECD member and non-OECD member countries). The major sources for data have been data bases of World Bank and OECD.

Preliminary results indicate that in developed countries (OECD member countries) the road network is so highly developed that any additional investment in roads does not have any significant impact on the efficiency. Whereas the maintenance of the road network is of significant importance in OECD member countries.

Publisher

Association for European Transport