A SCGE -modelling Approach to Wider Economic Benefits: Regional Economic Developments of a New Oslofjord Fixed-link.



A SCGE -modelling Approach to Wider Economic Benefits: Regional Economic Developments of a New Oslofjord Fixed-link.

Authors

Wiljar Hansen, Institute of Transport Economics

Description

Plans for a new fixed link across the Oslofjord is currently under development. The paper applies a multiregional SCGE -model to analyse the direct and indirect economic effects of different conceptual solutions for crossing the fjord.

Abstract

The Oslofjord works as a barrier against functional integration between the regions on the east and west side of the fjord. In spite of the Oslofjord tunnel and the ferry between the cities of Moss and Horten, the regions on each side of the fjord must be regarded as separate functional regions.
Plans for a new fixed link across the fjord is currently under development by the Norwegian Public Roads Administration. A new fixed link connecting the two sides of the fjord will reduce the time-cost barrier and is expected to lead to productivity gains from closer regional integration.
Larger infrastructure investments are often assumed to have rippling effects throughout the economy not captured by the traditional cost-benefit analysis (CBA). A traditional CBA assumes perfect competition in all markets. From economic theory we know that with a reasonable degree of perfect competition only the benefits accrued by the users of the infrastructure form the net benefit in the CBA. Adding spillover effects in a perfect competitive environment will only result in double counting. When price equals social marginal cost, the effects of the traffic improvement on secondary markets will be nothing more than transformed forms of the utility devolved by the traffic users in the primary market. Hence, partial considerations are sufficient when markets are characterized with a reasonable degree of perfect competition.
However, market imperfections in the transport using sectors will, independent of the market structure in the transport sector, produce utility effects not cancelling out. Such market imperfections may lead to an under estimation of the user benefit in the CBA. Wider economic benefits are benefits not captured in the direct user benefits in a well constructed CBA, after allowing for technological external effects.
The most important economic effects not captured in a traditional CBA can be summarized in four categories:
• Agglomeration effects
• Labour market effects
• Increased production in imperfect markets
• Increased competition in imperfect markets
In order to capture the wider economic benefits of larger infrastructure investments other assessment tools are needed.
This paper develops a multiregional Spatial Computable General Equilibrium (SCGE) -model on Norwegian data, and applies this model to analyse the regional and national economic effects of different conceptual solutions for crossing the Oslofjord. The developed SCGE -model departs from the assumption of constant returns to scale and perfect competition in all markets, and take into account commodity-, commuting- and migration flows between the regions in the model.
The paper relates to the ongoing discussion on the link between infrastructure and economic growth and illustrates how SCGE -models can be used in transport appraisal for larger infrastructure projects.

Publisher

Association for European Transport