6. Wider economic impact

This benefit cluster relates to wider economic impacts.

In addition to, or in some cases as a consequence of, direct impacts, there can be indirect impacts on the economy. These may cause a redistribution or reallocation of resources or may cause the entry or exit of firms. These are wider economic impacts and can include:

• agglomeration or specialisation of economic activity arising from improved transport that can encourage economies of scale
• mitigating existing market failures by improving accessibility and therefore competition between markets
• increased output in imperfectly competitive markets by diminishing persistent externalities
• technology and knowledge transfer by connecting people and places, and increasing the interaction between economic actors.
• increased activity through changes in development patterns and activities that are enabled through transport system changes.

Wider economic impacts have been used internationally to improve transport cost–benefit analysis (CBA) and can be thought of as impacts that are additional to the conventional benefits to transport users.

In considering the impact of any investment, attention should be given to the land use and dynamic changes that investment may contribute to. Great care is required to ensure that the estimates for wider economic benefits are truly additional to conventional benefits to avoid double counting.

The following wider economic benefits are applicable in the New Zealand context:

• agglomeration, where firms and workers cluster for some activities that are more efficient when concentrated
• changes in labour supply, where a reduction in commuting costs removes a barrier for new workers entering the workforce
• imperfect competition, where a transport improvement allows output to increase in sectors where there are price–cost margins
• regional economic development, where changes in tourism spend in a region leads to a net increase in national economic activity.

These benefits do not have specific quantitative measures associated with them, as a broad range of factors are incorporated into the calculation of wider economic benefits. All of the benefits are monetised benefits that should only be used for large scale interventions.

Benefits

Four benefits sit beneath this benefit cluster:

6.1 Wider economic benefit (productivity)

6.2 Wider economic benefit (employment impact)

6.3 Wider economic benefit (imperfect competition)

6.4 Wider economic impact (regional economic development)

> Return to the overview of the Land Transport Benefits Framework