FREIGHT TRANSPORTATION Improvements and the Economy

The Federal Highway Administration provides high-quality information to serve Government, industry, and the public in a manner that promotes public understanding. Standards and policies are used to ensure and maximize the quality, objectivity, utility, and integrity of its information. FHWA periodically reviews quality issues and adjusts its programs and processes to ensure continuous quality improvement. Despite the wealth of information on transportation's contribution to the economy, debate continues on the linkages between transportation improvements and economic performance and the relative strength of these links. Focusing on freight transportation, this report summarizes the results of the Federal Highway Administration's (FHWA's) work on the economic benefits of transportation improvements. In addition to this 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. Three methods—macroeconomic and microeconomic research and general equilibrium approaches—have been employed to study the linkages between transportation and the economy. Each of these is discussed in this report. ■ Macroeconomic research focuses on the broad link between transportation spending and U.S. Gross Domestic Product (GDP). FHWA-sponsored research in the 1990s on the effects of highway investment definitively determined that highway capital contributes to economic growth and productivity, although the effect was greater in the 1950s and 1960s when the Interstate highway system was being built. ■ Microeconomic research, particularly benefit-cost analysis (BCA), evaluates the effects of transportation improvements on individual firms, such as cost savings and service improvements. Accordingly, BCA has become an important tool for assessing the benefits of transportation investments. Traditional BCA, however , does not capture all the benefits of highway investments, particularly those realized by shippers, such as faster and more reliable delivery. ■ General equilibrium approaches focus on measuring the benefits of transportation improvements gained from regional specialization and technological changes. The use of this method to analyze linkages between transportation improvements and the economy is still relatively new. Decisionmakers need detailed information and analytical tools to prioritize projects and determine spending levels. Since many decisions on transportation investments are made at the local level, FHWA's Office of Freight Management and Operations is working on refining BCA to provide a fuller accounting of the benefits of transportation investments for freight movement. To date, only the benefits to carriers have been counted, ignoring the benefits to shippers. This new research documents a range of short-term (first-order) and …