Estimating the Impact of Highways on Average Travel Velocities and Market Size

In this paper we examine the link between additions to highway infrastructure and development of a market area. We do so by first relating highway travel speeds to added highway-mileage and then relating travel speed to the size of the market area. This approach bypasses issues in the public finance literature that derive from estimates of highway infrastructure spending. Also, rather than examining the effects of improved transportation efficiency on enhancements of productivity, this research examines their effect on enhancements in demand for local production. Our thought, which is borne out in the literature, is that industry-level productivity in a metropolitan area may be improved only marginally by lower delivered prices of inputs due to very localized improvements in the freight transportation system. On the other hand, the market for locally produced goods and services will expand somewhat uniformly across industries due to generally improved traffic movements in a metropolitan area. By applying this approach to data from the Texas Transportation Institute, we find a significant but small positive effect of highways and arterials (as opposed to other roadways) on changes in metropolitan urbanized area and metropolitan population change. This suggests that demand for local production may well be enhanced by expansions of highway and principal arterials infrastructure.