CoPS/IMPACT Working Paper Number G-335

Title: Spatial economic dynamics and transport project appraisal

Author: James Lennox


Transport infrastructure is costly to build and very long-lived. Major projects are expected to enhance accessibility, which over time, is likely to a ect the distribution of population and employment. In a Dynamic Spatial Equilibrium (DSE) model, the timing and location of a project's direct costs and benefits can be explicitly represented. Effects of both construction and operational phases are captured in a forward-looking spatial general equilibrium with costly adjustment. Not only are dynamic responses of direct interest to policymakers, but they have crucial implications for welfare analysis.

In this paper, we present a flexible DSE model incorporating dynamics of internal migration and occupation choice, and intra- period spatial linkages via commuting and trade flows. We calibrate the framework to Australian data and illustrate its application by modelling a hypothetical fast express rail service in South-East Queensland. In analysing the results, we highlight the roles of general equilibrium effects within and between periods. These are important both to overall welfare benefits and to their distribution.

Transport cost changes are exogenous inputs to our simulation. However, we also discuss the potential to link a DSE model to a four-step strategic transport model to enable fully dynamic Land Use-Transport Interactions (LUTI) simulations.

JEL classification: R12, R23, R42

Keywords: dynamic spatial equilibrium; project appraisal

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