The social rate of return on infrastructure investments

The authors estimate social rates of return to electricity-generating capacity and paved roads, relative to the return on general capital, by examining the effect on aggregate output and comparing that effect with the costs of construction. They find that both types of infrastructure capital are highly complementary with other physical capital and human capital, but have rapidly diminishing returns if increased in isolation. The complementarities on the one hand, and diminishing returns on the other, point to the existence of an optimal mix of capital inputs, making it very easy for a country to have too much - or too little - infrastructure. For policy purposes, the authors compare the rate of return for investing in infrastructure with the estimated rate of return to capital. The strong complementarity between physical and human capital, and the lower prices of investment goods in industrial economies, means that the rate of return to capital as a whole is just as high in rich countries as in the poorest countries but is highest in the middle-income (per capita) countries. In most countries the rates of return to both electricity-generating capacity and paved roads are on a par with, or lower than, rates of return on other forms of capital. But in a few countries there is evidence of acute shortages of electricity-generating capacity and paved roads and, therefore, excess returns to infrastructure investment. Excess returns are evidence of suboptimal investment that, in the case of paved roads, appears to follow a period of sustained economic growth during which road-building stocks have lagged behind investments in other types of capital. This effect is accentuated by the fact that the relative costs of road construction are lower in middle-income countries than in poorer and richer countries. As a rule, a tendency to infrastructure shortages - signaled by higher social rates of return to paved roads or electricity-generating capacity than to other forms of capital - is symptomatic of certain income classes of developing countries: electricity capacity in the poorest, paved roads in the middle-income group. To the extent that such high rates of return are not detected by microeconomic cost-benefit analysis, they suggest macroeconomic externalities associated with infrastructure.Decentralization,Banks&Banking Reform,Fiscal&Monetary Policy,Economic Theory&Research,Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,Environmental Economics&Policies,Public Sector Economics&Finance,Inequality

Reforming and privatizing Poland's road freight industry

This study explores options for the restructuring and the privatization of PKS, Poland's main state-owned enterprise for road transport of passengers and general freight. As regards privatization, the focus of the study is on road freight haulage operations of PKS and not on its passenger operations by bus. Privatization of road haulage (trucking) is intended to raise the productivity of resources employed in transport and to thereby assist in the recovery of the economy and of employment. The key to this outcome is the creation of a competitive environment and, equally, the introduction of management by, or under the control of, owners with a clear right to the net income from the business. The process of privatization must therefore allow wide scope for the development of commercially alert and market-oriented management. The scope and form of feasible privatization depend also on how road haulage will be regulated and on financing possibilities for private buyers, investors or tenants. The study therefore also analyzes the general organization of Poland's road haulage, the operations of its different segments, and discusses transport regulation, financing and taxation.Roads&Highways,Banks&Banking Reform,Municipal Financial Management,Transport and Trade Logistics,Common Carriers Industry

Reforming and privatizing Hungary's road haulage

The Volan units (previously unitary but now formally dismembered) provide public transport services for both passengers and freight, and make up the largest enterprise in Hungary's road transport industry. Immediately after separation in 1989, the Volan group of units employed 67,000 persons and operated 12,672 trucks and 8,010 buses. In 1989 Volan carried 34 percent of Hungary's professional road haulage tonne-kilometers. This report focuses on options for restructuring the Volan group. It therefore also considers the content and implementation of Hungary's overall road transport policy as well as related questions of finance and taxation, all of which define the conditions under which the Volan successor enterprises, however transformed, will have to prove themselves.Roads&Highways,Banks&Banking Reform,Municipal Financial Management,Transport and Trade Logistics,Common Carriers Industry

What determines demand for freight transport?

Decisions about investments in the long-lived assets of transport infrastructure require some assumptions about prospective long-term demand from services using that infrastructure. To improve the basis for such predictions, the authors estimated the long-run determinants of domestic freight transport, using single-equation regressions on a cross-section of data from developed (high-income), developing (low-income) and former socialist economies. They also sought answers to two related questions. First, since statistics on national ton-kilometers of freight transport are much scarcer for developing than for developed countries, what is the scope for generalizing from data on high-income countries? Second, within what limits may one apply results obtained from data on market economies to the prospective evolution of freight transport demand in the socialist transitional economies? They report the following finds, subject to caveats related to the simple methodology used. For the sample of developed countries, and the merged samples of developed plus developing countries, total ton-kilometers of freight transport (excluding transit) are adequately explained by two variables: a country's area and total GDP. Ton-kilometers by road are chiefly explained by GDP; ton-kilometers by rail are explained by countryarea. Road freight in developed and developing market economies shows very similar response (in additional ton-kilometers) to variations in GDP. But the elasticity of demand for road ton-kilometers with regard to GDP should be about or above 1.25 for developing countries, compared with close to unity for the high-income countries. Demand for rail freight transport appears to be determined in closely similar ways in both groups of countries. Elasticity with GDP appears to be close to unity. Judging from the narrow basis of evidence on socialist economies (China and the former USSR were excluded for technical reasons), transport demand was determined very differently in their systems than in the market economies. The contrasts are almost entirely explained by the differences in the role of, and demand for, rail transport in the different economic systems. The road sector of freight transport, on the other hand, conforms closely to norms in the market economies; the marginal response (additional ton-kilometer for additional GDP) and elasticity with respect to GDP, appear - on the available evidence - to be close to what is found for developed market economies. In short, structural change in the socialist economies is likely to bring about far greater changes in rail freight activity than in road transport.Environmental Economics&Policies,Railways Transport,Poverty Impact Evaluation,Economic Theory&Research,Climate Change