September 18, 2008 Transport and Economic Change: Background Concepts GE 541

Review so far of Transport Impacts on:  Socioeconomic and urban development  Supported by statistical and descriptive evidence  A preliminary level of understanding

 A fuller understanding of transport-development relationships would require understanding of change agents and the processes they operate through, cause and effect mechanisms and the like.  Explanatory models of transport developments and socioeconomic change of varying levels of sophistication exist, and we will survey some of these models.  Prior review of background concepts of transport and development necessary.

Economic flows, capital, and infrastructure Slow and fast processes Economic Growth and Development Growth --- a matter of scale Development --- a structural change, reflecting a change in the environment of the decision agent, and a new behavioral pattern

Large, lumpy, and long-lived Economic and Social Overhead Provision of transport facilities and different utilities enhances the productivity of producer capital (machinery, equipment, livestock, etc.) and of consumer capital (housing). Investments in education, heath care, recreation enhances the quality of human resources through improved skills, reduced absenteeism, etc. Infrastructure

The term ‘Infrastructure’ used in economic development literature since 1940s impressionistically --- Rosenstein-Rodan, Nurske, and Hirschman. Youngson’s view of infrastructure: Not a set of things but a set of attributes. Two attributes recognized. Capital can be viewed as infrastructure to the degree a) it is a source of external economies, and b) it has to be provided in large units ‘ahead of demand’.

Both criteria imply the desirability of some public investment (since, given the external effects, private investment tends to be not socially ideal). Provision ahead of demand is an ex post argument (satisfactory when outcome is known). Argument for such provision strong when infrastructure is non-specific in character, which can be used for production of many types of final outputs such as education infrastructure. Direct and indirect benefits of a novel idea

Stock of Infrastructure has several effects on the level and mix of productive activities: * reduces the prices of material and labor inputs and increase efficiency and, * capacity increase leads to a better quality of service — 6-lane highway has more capacity and faster and safer than a 2-lane highway— creating new demands.

Infrastructure and the Efficiency of Production

Services, information activities, and communication infrastructure Over the second half of 20 th Century, US and other industrialized countries have had a structural shift towards services. Long-term Shifts in the Employment Share of Service Sector,

* Income elasticity for services > 1. Complementarity of consumption of goods and services * Rise of transaction costs (risk, uncertainty, asymmetrical distribution of information, coordination and control), and Adjustment costs ( production of skilled labor, special capital goods, and new organizations). This leads to new human capital and producer services. * Slower productivity growth in some service sectors; share of services employment grows. Three Reasons for Services Growth:

Growth segments of service sector; * Final services e.g. education and health — sophisticated, internationalized sector of service production, * Producer Services: Increasing global division of labor, global corporations, importance of coordination and control, and * Producer service-like functions in the public sector: the need to protect consumer interest, workers’ rights, environment, equal opportunity, promotion of national economic interest in a global economy.

Increasing need to integrate and coordinate the increasingly differentiated, and specialized parts of a global economy. Need for ‘economic intelligence’, ‘technological and scientific information; and information pertinent to transport of goods and services across space. ‘information economy’, ‘Knowledge industries’

Information Producers Users of Information as input to production Bell (1973) Knowledge Industries Machlup (1962)Uno (1982) Porat (1976) Different Definitions of Information Activities

Information Workforce Trends (% of total workforce)

The U.S. Telecommunications Sector

Communication infrastructure The information highway Information investments and Service sector growth relationships? Simple transfer of ideas from models of goods production problematic

Service Transformation attributes Joint provision of goods and services Service consumption complementary to goods consumption Globalization of production with the functional differentiation between production and service delivery on the one hand, and central R&D, administration and control offices on the other has created a variety of intermediate services.

Variety of producer and intermediate services increasing and demanding cheap supply of information. The increased density, speed, and quality of information flows (e.g. logistics) has been to ‘transport services.

Some consumer services and the ‘Cost Disease’ (Baumol) Some form of ‘industrialization’—McDonalds Other cost reduction innovations: task subdivision, capital intensification, economies of scale, and transfer some part of service production from the market to consumer Manufactured products (autos, TVs), plus intermediate services (repair services, TV programs) plus physical infrastructure (roads, broadcast networks, power networks) plus on paid ‘informal’ (household) labor to produce transportation and entertainment services, ---Combinations of industrial goods, intermediate services, infrastructure, and time.

Resource Inputs Production Activity Goods Environmental Residual Production of Goods (after Garn et al., 1976)

Producer Activities Resource Inputs Jointly Produced Consumer Assets & Attributes Consumer Activities The Production of Service Output (after Garn et al., 1976)