Wider Economic Impacts of a New Ferry Free E39; a Norwegian Mega-project



Wider Economic Impacts of a New Ferry Free E39; a Norwegian Mega-project

Authors

Wiljar Hansen, Institute of Transport Economics, Bjørn Gjerde Johansen, Institute of Transport Economics

Description

A newly developed SCGE-model is applied in order to analyze the direct- and indirect effects of a new ferry-free E39; a Norwegian mega-project which replaces 7 ferries with fixed links along the 1100km long costal road from Trondheim to Kristiansand.

Abstract

The plans for a new ferry-free E39 is a much debated Norwegian mega project which replaces 7 ferries with fixed links along the 1100km long costal road from Trondheim to Kristiansand.
Improving the accessibility of a region enhances the potential for inter-regional interaction. A reduction in generalized transport costs bring markets closer together with improved access to both input materials and product markets, stimulating increased competition with higher output at lower prices, while the choice sets on where to work and who to hire are expanded for workers and firms, affecting wages and employment. Infrastructure investments and improved accessibility lead to both redistributive and generative growth, favouring some regions and actors at the expense of others.
In this paper, we employ a newly developed SCGE (Spatial Computable General Equilibrium) –model in order to analyse the direct- and indirect effects of a new ferry-free E39. SCGE-model analysis are conducted on the full-scale ferry-free investment from Trondheim to Kristiansand, as well as on separate fixed links along the route. The reported results are part of the Norwegian National Transport Plan (2018-2027). 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.
In a traditional and well specified CBA (Cost -benefit analysis) it is assumed that the analysis capture all relevant benefits from the infrastructure investment. Most manuals for transport appraisal focus on the direct transport user benefits and costs, such as:
• The transport users and merchandise owners time- and reliability benefits
• Profits from public transport companies and other companies in the transport sector
• Public budget effects
• Accident costs, emission costs, noise costs, etc.
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 should 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.
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, creating wider economic impacts. One of the main reservations against using CBA as a decision support tool in transport appraisal lies in the method’s inability to incorporate such wider economic impacts of new or improved infrastructure. In order to capture such wider economic impacts, other assessment tools are needed.

The paper develops and applies a multiregional SCGE model. The model utilize data from sources such as the Norwegian national accounts, the Norwegian national transport modelling system (freight and passenger transport), the foreign trade statistics and the Norwegian commodity flow survey. 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. We consider spatially detailed models to be the approach best suited to analyze the rippling effects in the economy of large infrastructure investments, and employ a SCGE –model in order to analyze the indirect impacts cause by general equilibrium repercussions. SCGE-models embrace the entire economy, making these models particularly suited for analyzing wider economic impacts of transport investments, through the link between the transport sector and the transport using sectors, acknowledging that an exogenous change in one sector may produce repercussions throughout the economy.

Publisher

Association for European Transport