Evaluation tool for Wider Economic

Effects of Railway Investments

- Making CGE Results Accessible

Jouko Kinnunen

Heikki Metsäranta

Hannu Törmä

Seppo Laakso

Urszula Zimoch

ERSA Lissabon

26th August

2015

Statistics and Research Åland, ÅSUB

The official statistical authority of the Åland Islands

Research institute serving local and other customers

Personnel 10.5 man-years

Annual gross income 0.8 € m.

Åland, self-governed archipelago region

in the middle of the Baltic Sea

Background of the study • Based on work carried out within the

project‘ Wider economic impacts of

transport investments’, Activity 5.3 of the

Work Package 5 of the Bothnian Green

Logistic Corridor (BGLC)

• Aim to increase knowledge and

understanding of the economic impacts of

infrastructure development by means of:

• An excel tool based on extensive CGE

model simulations regarding railway

investments

Infrastructure & economy

• Primary benefits within the transport

system: accessability, transport costs

• Secondary, externality benefits in other

parts of the society: commuting and

migration patterns, employment, wages,

agglomeration benefits

CGE models

RegFinDyn and RegSweDyn

• Based on the Australian TERM model with influences on

other CoPS models

• Perfect competition assumption

• Recursive dynamics (not intertemporal)

• Agglomeration effects taken into account – growth in

region’s share of national wage sum (production side)

increases productivity with industry-specific rates

(Kernohan D. and L. Rognlien, 2011)

• Detailed, endogenous demographics through migration

(regional fertility and mortality rates exogenous)

• Regional wage curve

• Migration flows react to regional differences in the

unemployment rate

Info on CGE Models & Runs

• RegFinDyn

• 5 NUTS2 regions

• 35 industries/products

• 96 age cohorts (0-95+)

• Region-specific fertility

and mortality rates

• Region-specific

age&gender structure of

migration flows

• 64 investment scenarios

• 64 use phase scenarios

• RegSweDyn

• 8 NUTS2 Regions

• 20 industries/products

• 96 age cohorts (0-95+)

• Region-specific fertility

and mortality rates

• Region-specific

age&gender structure of

migration flows

• 160 investment scenarios

• 40 use phase scenarios

Investment

shock

calculation

Assessment tool in MS Excel: WebRailFin or WebRailSwe

Wider economic impacts

of investment shock

GDP, Consumption,

Employment, Population

Wider economic impacts

of the productivity shock

GDP, Consumption,

Employment, Population

Input

parametres

National area,

Price levels,

Investment cost,

Cost savings,

Spatial

distribution of

shocks

Sensitivity analyses by changing the input

parametres

Cost benefit analysis

(project assessment)

of the investment

Background

information and

preparatory work

Selection and definition

of the cost savings that

have impacts on

productivity

Previously run simulations by CGE-models

RegFinDyn and RegSweDyn

Productivity

shock

calculation

Result data bank for

benefit scenarios

Result data bank for

investment scenarios

Colour legend

External source of information

User defined input information

Data and functions in the tool

Results calculated by the tool

The twin excel tools:

WebRailFin and WebRailSwe

Regression

estimates

between

shocks and

outcome

variables

The step from CBA to CGE

• The CBA results enter our CGE model through the

following parameters:

– Public consumption: changes in maintenance and investment costs

•

– Productivity of railway traffic: reduction in traffic costs

•

– Change in consumer preferences: change in traffic consumption (in

favor of railway traffic away from road traffic)

•

– Productivity of labor: time savings, reduction in accident costs (loss of

life)

User inputs

Result graphs

Results table

• Regional results for identical investments differ –

as they should

• National vs. regional point of view: larger

absolute effects in central regions, larger relative

effects in peripheral regions

• The effects of the investment shock are (overtly)

long-lasting – investment function specification &

closure issue?

• The full financing assumed through increased

VAT has a major impact on results

A note on results

Pandora’s box of

development options • Immediate results – user can do her own sensitivity tests

along the dimensions provided for the user

• No need for specific model software

• Data input usually available from CBAs – complementary tool

• BUT: – A lot of built-in, restrictive assumptions – loss of flexibility

compared to CGE models

– Limited domain of applicability - Useability???

– Nr of background simulations – still too few?

– Higher number of outcome variables desirable?

– More CBAs needed for background simulations?

– Different model closures? Debt-financing option?

– Further financing for development of the tools?

Please acquaint yourselves with the

tools and give us feedback

• Email: jouko.kinnunen@asub.ax

• The tools are available in the following web addresses:

• https://www.researchgate.net/profile/Jouko_Kinnunen

• or:

• http://files.strafica.fi/WEBRAIL/ (changed)

• or:

• http://www.pirkanmaa.fi/fi/bglc

Thank you for your interest!