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International Transport Forum Transport infrastructure and economic growth Dr Tim Leunig.

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Presentation on theme: "International Transport Forum Transport infrastructure and economic growth Dr Tim Leunig."— Presentation transcript:

1 International Transport Forum Transport infrastructure and economic growth Dr Tim Leunig

2 Back to basics… Y=f(K,L) Diminishing marginal returns Dr Tim Leunig 2

3 Violation 1 A new technology that is so big, it saves a colossal amount of time Harry Potter’s flu powder Dr Tim Leunig 3

4 Invention of the railway c. 25mph (40kmph) in the nineteenth century Compares with 2.5 mph (4kmph) walking or by cart London to Brighton was 3 days before, became 2 hours afterwards Used by lots of people Dr Tim Leunig 4

5 Railways were used Journal of Economic History, 2007 Dr Tim Leunig 5

6 Modern equivalent Low cost airlines replacing coaches? See Golson and Leunig on benefits of point to point service (just started!) Dr Tim Leunig 6

7 The steamship for goods The British cotton industry – biggest in the world, 500k employed in cotton processing, 1.2m in textiles All raw cotton is imported, 80% of cotton cloth exported Nineteenth century English population growth outstrips Ireland’s. Ireland starves, and England gets rich… Dr Tim Leunig 7

8 Violations 2 Completing a network Aschauer and American highways Digging the last metre of the channel tunnel was very worth while Repairing landslipped roads in China, Borneo, etc NOT Beeching – most journeys are point to point Dr Tim Leunig 8

9 LatAm railways Complete the “LatAm farm – European table” chain Brazilian & Mexican railways have social savings of c. 33% 1913 (Summerhill, 2005, Coatsworth, 1979). The figure for Germany is <5% (Gremdling 1983) Dr Tim Leunig 9

10 Prediction A transformational infrastructure project will usually transform a factor price Prior to the railways and the steam ship, land in Argentina’s interior was worthless. Ditto the American midwest with canals and railways Obvious parallels with international trade literature – factor price equalisation Dr Tim Leunig 10

11 Suggestion If you claim a project will be transformational, state the factor price you predict will change. Will a new area of settlement open up, raising land prices? Will a new group of people “get connected”, raising wages? Will prices fall as new supplies come on stream? What quantity of the item is sold? Is it a lot? Dr Tim Leunig 11

12 Modern day example 1 Docklands The land was worth very little c. 1980. Now it is worth a lot (although not as much as the City) Prior to the DLR & JLE, land in Docklands was a poor substitute for land in the City. Afterwards it was a better substitute, and prices converged Dr Tim Leunig 12

13 Why did it work? Because the City was bursting at the seams Finance was growing, rents were VERY high, wages were high It was a good bet as an industry to expand Up or out – we choose out, although since then have supplemented out with up Dr Tim Leunig 13

14 Comparison with Sheffield Supertram is the same length as Docklands Built at the same time Passenger miles = 1/6 of Docklands Sheffield is not “land constrained” like the City No need to go up or out! Therefore transformed nothing Dr Tim Leunig 14

15 Modern day example 2 Prior to A8 accession, UK and Polish wages were very different. Lots of Poles came to work in London, and presumably wages converged a bit Ryanair helped, but the coach would have been sufficient It was deregulation of labour markets that caused price convergence, not transport Dr Tim Leunig 15

16 Modern day 3 Øresund Bridge 5.3km $8bn 36m pas/year 40 Euros Only 1.25m people live in Skåne Dr Tim Leunig 16

17 Violations 2 Agglomeration economies The post, telephone, fax, email, skype, videoconferencing etc are poor substitutes for proper face to face interaction. 1 + 1 = 3 Dr Tim Leunig 17

18 Historically The railways were revolutionary Did they radically change the location of industry? No Dr Tim Leunig 18

19 Journal of Economic History, 2007 Dr Tim Leunig 19

20 To think about The UK & French economies are > $2tr NOTHING can transform a $2tr economy (well, not upwards!) Dr Tim Leunig 20

21 For govt to think about 1 High prices If the price of something is very high, can you expand it, or allow it to expand? Silicon Valley vs Oxford and Cambridge O & C land values suggest that they should grow (£4m/ha with residential planning permission) Dr Tim Leunig 21

22 For govt to think about 2 Low prices If people in one place within the country are paid less than in another, can you connect them? Or allow them to move? If your people with skill level X are paid less than elsewhere, investigate why. It may be transport and lack of agglomeration (but not likely) Dr Tim Leunig 22

23 For govt to think about 3 Go to NY, London and LA Transport is pretty rubbish Yet they are successful Don’t overemphasise transport Dr Tim Leunig 23

24 Is it transport that: Makes Reading richer than Rochdale? (no) Makes Switzerland richer than Swaziland (no) Dr Tim Leunig 24

25 Questions? Comments?

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