Freight Transportation Improvements and the Economy

Abstract

This report summarizes the results of the Federal Highway Administration’s (FHWA’s) work on the economic benefits of transportation improvements using macroeconomic, microeconomic, and general equilibrium approaches. Detailed information is provided on recent microeconomic research focused on improving benefit-cost analysis (BCA) of freight transportation improvements. FHWA’s Office of Freight Management and Operations sponsored this research. In addition to the summary, two analytical reports are included as appendices: 1) Economic Effects of Transportation: The Freight Story; and 2) Transportation Infrastructure, Freight Services Sector and Economic Growth: A Synopsis. The BCA research was conducted to improve estimation of the benefits of transportation improvements. In current BCA only the benefits to transportation carriers are counted ignoring the benefits to shippers. The research was conducted in two phases. Phase I of FHWA’s research documented a range of short-term (first-order) and long-term (second-order) benefits to both carriers and shippers. First-order benefits include a reduction in transportation costs to individual firms due to decreases in transit time. Second-order benefits include efficiency improvements and further cost reductions, resulting from improvements in logistics and supply chain management and changes in a firm’s output or location. Phase II focused on developing an analytical model using readily available data to estimate the links among highway performance, truck freight rates, and shippers’ demand for highway freight transportation. The model was designed to quantify first-order and second-order benefits detailed in phase I of the research. Preliminary results of Phase II research suggest that the benefits found in current benefit-cost models should be increased by about 15 percent to account for these newly measured effects.\n

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