Proceedings of the Eastern Asia Society for Transportation Studies, Vol.6, 2007 THE ECONOMIC FEASIBILITY STUDY FOR INTRODUCTION OF URBAN TRANSIT MAGLEV TRAIN BAEK, Joo Hyun SUL, You Jin Ph. D. Candidate Master’s Course School of Civil, Urban and Geosystems School of Civil, Urban and Geosystems Engineering Engineering Seoul National University Seoul National University 56-1 Sillim-dong, Gwanak-gu, Seoul 56-1 Sillim-dong, Gwanak-gu, Seoul Republic of Korea Republic of Korea Fax: +82-2-889-0032 Fax: +82-2-889-0032 E-mail: [email protected] E-mail: [email protected] LIM, Tae Hoon RHEE, Sung Mo Master’s Course Professor School of Civil, Urban and Geosystems School of Civil, Urban and Geosystems Engineering Engineering Seoul National University Seoul National University 56-1 Sillim-dong, Gwanak-gu, Seoul 56-1 Sillim-dong, Gwanak-gu, Seoul Republic of Korea Republic of Korea Fax: +82-2-889-0032 Fax: +82-2-889-0032 E-mail: [email protected] E-mail: [email protected] Abstract : It is generally acknowledged that economic feasibility study should be preceded when introducing and developing new transit system such as urban transit maglev train. Urban transit maglev train recently known for technology is recognized for potential superiority of environment friendship and maintenance and is selected for one of national projects. Although maglev train is commercially operated at Nagoya Tobu-kyuro line in Japan, it is expected that there are some technical problem for maglev train to alternate the existing LRT market. However, it is expected that economic ripple effect would be great when some problems is settled. Since it is required enormous budget to promote practical-use plan of urban transit maglev train, it is necessary to precede economic feasibility study to attain the reasonability of the project. In this study, the scales of domestic & international market of maglev train are analyzed and the methodology of economic analysis is classified. Key Words: urban transit maglev train, inter industry analysis, economic feasibility, economic ripple-effect 1. INTRODUCTION Recently, local autonomous entities in Korea are tend to introduce LRT ( light rail transit) in the limelight more than heavy rail transit. Ministry of construction & transportation has included practical-use plan of urban transit maglev train as '10 major policies of nation', and it reflects attitude of government for reorganization of transportation system. Magnetic levitation vehicle, or maglev, is a form of transportation that suspends, guides and propels vehicles via electromagnetic force. This type of vehicle can be faster than other wheeled mass transit systems such as heavy rail transit, potentially reaching velocities comparable to turboprop and jet aircraft. Proceedings of the Eastern Asia Society for Transportation Studies, Vol.6, 2007 If scientific and economic barriers and limitations which have hindered the widespread adoption of the technology are overcome, a lot of cities in Asia could be great markets of magnetic levitation vehicle. The projects of reorganization of transportation system have also been under consideration for about 500 lanes in many countries in Oceania, Southern America and North America. In this study, the scales of domestic & international market of maglev train are analyzed and the effects of export & import are studied. Also, economic ripple effects such as production and employment are estimated and economic feasibility study for urban transit maglev train is analyzed. In this study, it is analyzed that practical-use plan of urban transit maglev train has economic feasibility for the analysis period. 2. THEORETICAL REVIEW 2.1 Inter Industry Analysis Inter industry analysis of economics uses a matrix representation of a nation's (or a region's) economy to predict the effect of changes in one industry on others and by consumers, government, and foreign suppliers on the economy. Wassily Leontief is credited with the development of this analysis which is also called as input output analysis and multi-sectional analysis. Input-output analysis considers inter-industry relations in an economy, depicting how the output of one industry goes to another industry where it serves as an input, and thereby makes one industry dependent on another both as customer of output and as supplier of inputs. An input-output model is a specific formulation of input-output analysis. The yielding method of input coefficient, value-added coefficient for inter industry analysis and production induced coefficient are explained below. 2.1.1 Input Coefficient and Value-Added Coefficient Input coefficient identifies the percentage or the portion of the total inputs of a sector required to be purchased from another sector irrespective of the geographic origin of this purchase. Input coefficients represent direct backward linkages of an industry to other industries and constitute the "recipe" for production of that industry. Value-added coefficient identifies the percentage or the portion of the total input of a sector consumed by value-added amount. The format of inter industry index is described in Table 1. Table 1 The format of inter industry index Middle Demand Final Input Income Total 1 2 … … n (Deduction) Production 1 x11 x12 … … x1n Y1 M1 X1 2 x21 x12 … … x2n Y2 M 2 X 2 Middle M M M M M Input M M M M M M M M M M n xn1 xn2 … … xnn Yn M n X n Value-added V1 V2 … … Vn Total Input x11 x12 … … x1n From the table 1, input coefficient ( a11 , a21 , an1 ) is the percentage or portion of the total inputs of a sector required to be purchased from another sector and it can be attained to divide middle inputs ( x11 , x21 …xn1 ) by total inputs ( X1 ). In the same way, Value-added coefficient(v1 ) can be attained to divide value-added amount(V1 ) by total inputs( X1 ). It can be expressed as numerical formula like below. Proceedings of the Eastern Asia Society for Transportation Studies, Vol.6, 2007 xij input coefficient : aij = (1) X j V j value-added amount : v j = (2) X j In the input coefficient index, a summation of input coefficient and value-added amount in any industry in one row become 1. It can be expressed as numerical formula like below. n ∑aij + v j = 1 (3) i=1 ⎡a11 a12 L a1 j L a1n ⎤ ⎢ ⎥ ⎢ M M M M ⎥ input coefficient matrix A = ⎢ai1 ai2 L aij L ain ⎥ (4) ⎢ ⎥ ⎢ M M M M ⎥ ⎢ ⎥ ⎣an1 an2 L anj L ann ⎦ value-added amount V = [V1 V2 K V j K Vn ] (5) 2.1.2 Production Induced Coefficient Production induced coefficient is to identify production amount induced directly or indirectly when a unit demand is increased. It is also called as inverse matrix coefficient since inverse matrix is used when to derive results. This equation can be expressed as an matrix a11 X1 + a12 X 2 + K + a1n X n + Y1 − M1 = X1 M M ai1 X1 + ai2 X 2 + K + ain X n + Yi − M i = X i (6) M M an1 X1 + an2 X 2 + K + ann X n + Yn − M n = X n where, aij : input coefficient X i : production amount of i Yi : total demand of i M i : income of i This matrix also can be expressed as an matrix equation. ⎡a11 a12 L a1 j L a1n ⎤ ⎡ X1 ⎤ ⎡Y1 ⎤ ⎡M1 ⎤ ⎡ X1 ⎤ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ M M ⎥ ⎢ M ⎥ ⎢ M ⎥ ⎢ M ⎥ ⎢ M ⎥ ⎢ ⎥ + - = ai1 ai2 L aij L ain ⎢ X i ⎥ ⎢Yi ⎥ ⎢M i ⎥ ⎢ X i ⎥ (7) ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ M M ⎥ ⎢ M ⎥ ⎢ M ⎥ ⎢ M ⎥ ⎢ M ⎥ ⎢a a a a ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎣ n1 n2 L nj L nn ⎦ ⎣X n ⎦ ⎣Yn ⎦ ⎣M n ⎦ ⎣X n ⎦ Here, A is input coefficient matrix, X is total production amount vector, Y is final demand vector and M is purchased amount vector. AX + Y − M = X (8) This matrix equation can be solved as X Proceedings of the Eastern Asia Society for Transportation Studies, Vol.6, 2007 X − AX = Y − M (I − A)X = Y − M (9) X = (I − A) −1(Y − M ) Here, (I − A)−1 matrix is called as production induced coefficient. This matrix can be expressed like below. ⎡1 0 L 0⎤ ⎢ ⎥ ⎢0 1 L 0⎥ ⎢M M M M⎥ I = ⎢ ⎥ (10) ⎢M M M M⎥ ⎢ ⎥ ⎢M M M M⎥ ⎣⎢0 0 L 1⎦⎥ 2.2 Economic Index Before estimating economic feasibility, it is necessary to calculate Benefit-Cost Ratio (B/C ratio). Benefit-cost ratio is a ratio attempting to identify the relationship between the cost and benefits of a proposed project. This ratio is used to measure both quantitative and qualitative factors since sometimes benefits and costs cannot be measured exclusively in financial terms. With a particular project, ifBt /Ct ≥ 1, the project is in the status of cash inflow in the time of t. It means the investment would add value to the firm, then the project should be accepted. n B n C t t Benefit − Cost Ratio (B/C ratio) = ∑ t / ∑ t (11) t =0 (1+ r) t =0 (1+ r) Where, Bt = present value of benefit Ct = present value of cost t = the time of the cash flow n = the total time of the project r = the discount rate Secondly, it is required to calculate Net Present Value. Net present value (NPV) is a standard method for the financial appraisal of long-term projects. With a particular project, if Ct is a positive value, the project is in the status of cash inflow in the time of t. It means the investment would add value to the firm, then the project should be accepted. n n Bt Ct Net Present Value (NPV ) = ∑ t − ∑ t (12) t =0 (1+ r) t =0 (1+ r) Thirdly, it is necessary to calculate Internal Rate of Return (IRR). The internal rate of return (IRR) is a capital budgeting method used by firms to decide whether they should make long- term investments.