Development of Transportation Infrastructure in the Context of Economic Growth

Ortiz-Moctezuma, M.B., Pivovarchuk, D., Szolgayova, J., & Fuss, S. (2008). Development of Transportation Infrastructure in the Context of Economic Growth. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-08-045

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Abstract

Developed road infrastructure is an essential factor facilitating and accelerating economic growth, which will in turn enable the addition of more roads. At the same time, the marginal benet of adding roads to a large stock of existing capacity might be diminishing. It is thus evident that the co-evolution of economic output and road infrastructure is rather intricate and deserves special attention. The model developed in this paper therefore investigates the interdependency between a country's economic growth and the development of transportation infrastructure in this country. To this end, a co-evolutionary perspective is developed, where the mutual inuence of the rate of economic growth and the capacity of transportation infrastructure are explicitly taken into account. This approach enables us to set up an optimal control problem, where the optimal investment rate is determined considering the co-evolutionary dynamics of GDP growth and capacity expansion. This model forms a comprehensive framework for understanding the underlying dynamics and the patterns of economic growth in relation to transport infrastructure. We nd an analytical solution for the innite horizon problem, where the control turns out to be a constant. The steady state is shown to depend crucially on the rate of physical decay of roads, which we think can be interpreted as an index of quality, and the speed of adjustment, at which the economy moves along a trajectory. Testing the model for the data of two countries, France and Finland, illustrates the usefulness of such an approach to real world problems and possibly policy recommendation, where the model would have to be adapted to the peculiarities of each country or region to make precise statements.

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