Transport Infrastructure and Economic Growth Report (international version) This report is a short international version of our main report on Russian released in 20191. The report classifies and describes the main types of socio-economic effects, both direct and indirect, arising from implementation of transport projects. The given list and classification of effects do not claim to be exhaustive, and our proposed methods do not claim to be universal and exceptional. In the report, some formulas and approaches are given for calculating various effects from the development of transport. We have set the task to accumulate existing and create some new approaches in terms of maximum applicability «here and now». As it will be shown in the review of world experience, there are sufficiently developed software products with complex mathematical models for evaluating the effects. At the same time, there is a lack of literature on this topic that carry a direct physical meaning of these effects. We deliberately omit all complex formulas (for example, in I/O models for estimating multipliers or calculating elasticity and damping coefficients for agglomeration effects) in order to focus on the semantic description of effects types. The report may be of interest to all researchers and experts of the transport sector, economists, and statesmen. Scientific guidance Petr Lavrienko, Pavel Chistyakov Authors Anton Vlasov, Anastasiia Glazunova, Mikhail Dmitriev, Valerii Dymov, Nikolai Isain, Ekaterina Kozyreva, Vladimir Kosoi, Karina Malaia, Aleksandr Morozov, Tatiana Pavlova, Anna Romashina, Vladimir Sviridenkov, Igor Smirnov, Pavel Stepanov, Maksim Fadeev, Oksana Filippova, Aleksandr Shirov, Dmitrii Shults Special thanks to Tatiana Mikhailova and Natalia Trunova as well as Institute of Economic Forecasting, RAS 1 https://infraeconomy.com/effecty Content Key findings 4 Dialog with an opponent 6 1. Investment in the transportation industry 11 2. Existing methods and models for assessing the impact of transport projects on economic development 15 2.1 Methodological approaches 15 2.2 Models for assessing economic effects 16 3. Types of socio-economic effects of transport development and suggestions for their assessment methodology 19 3.1 Effects of investment demand related to the implementation of infrastructure projects 20 3.2 Effects that have a direct impact on the transportation industry 22 3.3 Agglomeration effects 22 3.4 Effects of industrial output growth, associated with the elimination of infrastructure constraints 27 3.6 Effects of Increasing the Reliability of Freight Transport (Reliability Effects) 31 3.7 Projects of integrated territorial development 34 3.8 Environmental effects 36 3.9 Effects of increasing transport accessibility to global markets 38 Conclusion 40 References 42 Quantitative analysis of socio-economic effects. The Yekaterinburg–Chelyabinsk high-speed railway (HSR) 46 4 INFRASTRUCTURE ECONOMIC CENTRE Key findings It is difficult to overestimate the impact of the transportation industry on the economy. Transport provides the ability to move people and goods, being a necessary condition for creating a single economic space. Transport is the basis of trade infrastructure; it has a significant impact on the competitiveness of certain industries in countries and regions. Imperfections in the transport system (for example, bottlenecks, limited multimodality, high tariffs) negatively affect the efficiency of the country’s economy as a whole. Conversely, accelerated development of transport infrastructure and improvement of transport and logistics systems can have a significant impact on economic growth and, ultimately, on the well-being of the population. Transport projects affect a wide range of sectors of the economy during the construction period by creating an order for industry and services. However, it is the operational stage that transport causes the main socio-economic effects due to the impact on transport costs (in the broad sense) and factor productivity. Not only passengers and cargo-interests benefit from transport projects. For example, acceleration of commuter traffic and inclusion of new cities in agglomerations provides an economic effect for companies by expanding the labor market and sales, and all employees of a company benefit from this, including those who live in the suburban and do not commute. If a remote area of a city or region has become “closer” to the center, where “life is in full swing”, this leads to an increase in the population’s involvement in the economy, creates new incentives for personal development, for example, due to arrival of new residents with a higher level of education and consumer standards. Thus, indirect effects at the operational stage are obtained not only by direct users of the infrastructure, but also by organizations in which they work and localities in which they live. Assessment of the socio-economic efficiency of transport projects should be mandatory when making decisions regarding their implementation. The results of quantitative assessment of effects allow us to assess the feasibility of project implementation more meaningfully, compare projects with each other, and choose between different technical solutions. Indirect effects can play a significant role in determining the structure of project financing, the size and format of state support for the project. For a long time, the liberal economic agenda included the task of minimizing public expenditure on public infrastructure and, if possible, replacing it with extra-budgetary investment. The first victims of such economy were often transport projects due to their capital intensity. Understanding indirect effects allows us to conclude that direct budget savings should not always be the main criterion for choosing a particular project. In some cases, assessment of indirect effects shows that a project that is cheaper for the state may be less profitable than a project that is more expensive, but more in demand from the population and businesses. This seemingly trivial principle is critical in shaping the country’s infrastructure policy. It follows that the more universal a project is and the more people and companies will experience positive changes in transport communication (reducing travel time, reducing costs, improving the reliability and safety of transport, and so on), the greater the indirect effects on the economy are. Conversely, other things being equal, projects that benefit one particular company are less valuable for the country’s development. TRANSPORT INFRASTRUCTURE AND ECONOMIC GROWTH 5 The socio-economic effect depends not only on the scope of population and business coverage by changes in transport, but also on the intensity of these changes. For example, the shorter the travel time between major cities is, the higher the indirect effects are, and in some cases, this relationship is not linear, but exponential. This means that in order to achieve greater economic effects, it is better to concentrate investment in space in a smaller number of areas, but with more appreciable gains for users to improve transport accessibility, than to “spread a thin layer” across the country by implementing local events. For example, other things being equal, it is better to reconstruct one road and improve its category throughout its entire length than to make a dozen four-lane road sections of several kilometers apiece in different parts of the country. The two conclusions listed above about population coverage and the intensity of changes are, above all, important for countries with a low initial level of transport infrastructure development, which include many CIS countries (especially Russia), countries of South America, Asia (especially India), and others. This is also relevant for China, which already has a significantly developed transport infrastructure and with that, great opportunities for its further development. Based on these principles, one can identify the project classes for each country and region that have the greatest impact on the economy since they improve transport accessibility. In the EU countries, the U.S., Australia, and some other countries, methodological state-level work to assess the indirect effects of infrastructure development was started 20–30 years ago. As a result, today they have a whole set of proven, approved methods, the use of which makes it possible to effectively evaluate infrastructure projects in a comprehensive manner. In Russia, this area of research has remained exclusively the subject of interest of academic economists for many years. Only in 2019, the Ministry of Economic Development of Russia developed a Methodology for assessing the socio-economic effects of transport projects, which is a huge advance in this issue. Our team participated in the development of the Methodology, and many of the provisions of this Report correspond to the approaches of the Ministry of Economic Development. At the same time, we try to expand these approaches. Over the past 10–15 years, several specialized software products have been developed around the world to assess the impact of transport projects on the economy at the city, regional, or national level. These software products are used by infrastructure companies and government authorities when forming infrastructure policies and making decisions on particular infrastructure projects. Infrastructure Economic Centre has also followed this path. Using the gained international experience and Russian data, we have created