How far do roads contribute to development?

This post first appeared on The World Bank’s Let’s Talk Development Blog.

Roads are the arteries through which the economy pulses. By linking producers to markets, workers to jobs, students to school, and the sick to hospitals, roads are vital to any development agenda.  Since 2002, the World Bank has constructed or rehabilitated more than 260,000 km of roads. It lends more for roads than for education, health, and social services combined.  However, while roads bring economic and social benefits, they can also come with social costs such as pollution or deforestation.  The Amazon rainforest is crisscrossed by almost 100,000 km of roads—enough to circle the Earth two and a half times. And the transport sector accounts for about 23 percent of global energy-related carbon dioxide emissions and a significant share of local particle pollution. Such tradeoffs need to be weighed when planning any intervention.

How can research better inform transport sector policies? A recent working paper reviewed the academic evidence. The review is organized around a simple model of transport policies and their impacts (Figure 1). Policy makers have three main tools or instruments at their disposal. They can fund infrastructure investments such as building a new road or subway line; they can use price instruments such as taxes on gasoline or subsidies for public transit; or they can issue regulations such as fuel efficiency or safety standards. With these tools, policy makers can affect both the supply and demand for transport, which, in turn, lead to changes in the costs of transport services, accessibility and the magnitude of externalities. These changes stimulate economic responses in terms of trade, location choices or transport use and thus shape the ultimate development outcomes that policy makers seek.
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Figure 1. Impacts of transport policies: the mechanisms

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What do we know?

Measuring the overall impact of transport policies is difficult for a number of reasons. One is the lack of data: as a general rule, the poorer the country and the greater the need for transport to support development, the less data are available. Transport services also affect almost every economic activity to a varying degree, so isolating specific impacts is challenging. Furthermore, investments often target specific areas with high potential. The counterfactual outcome without the investment is therefore usually unknown. Randomized experiments—the go-to tool in many other sectors—are possible for some transport interventions but not when it comes to major infrastructure investments. The good news is that today, we have access to an ever increasing wealth of detailed geo-referenced data which opens up new avenues for analysis.  Recent advances in the field of econometrics present new solutions to old methodological problems, broadening the scope of impact evaluations.

To offer a comprehensive picture of the impacts of transport policies on sustainable and inclusive growth in a developing country context, the review paper summarizes the main methodologies and findings of more than 160 state-of-the-art papers in the economic literature. Many findings confirm common-sense intuitions of the effectiveness of transport policies. But there are also important lessons for policy makers, especially when it comes to choice of appropriate instruments. Policy makers favor highly visible physical investments, in particular building roads. Sometimes roads are built or upgraded even when demand hardly justifies it. Less intuitively, investing in roads is also sometimes the wrong intervention when demand is high. Increasing the supply of roads in high density areas will not reduce congestion when it attracts additional users in the same or even higher proportion.

Like investments, regulations can also often be ineffective. Trying to reduce traffic by restricting a rotating share of vehicles based, for example, on license plate numbers can increase air pollution. Many drivers circumvent the regulation by buying a second car—usually an old and inexpensive model that pollutes even more.

While complex transport sector problems require the use of all policy instruments, price instruments—favored by most economic researchers in many contexts—tend to be unpopular with policy makers. London has implemented congestion charging in the city center, but few other cities have followed suit. And few countries charge the full social cost of petrol; in fact subsidies are still far too common. The reasons likely have more to do with political economy, but more and better research about the high costs of such policy choices can support reform efforts.

Informing policies by addressing knowledge gaps

Transport policy decisions are too rarely based on solid evidence. To some extent, this reflects the current limits of research which is often based on individual case studies that may be difficult to generalize where policy impacts are context-specific. Studies also often focus on single policies rather than comparing the effectiveness of different options. These limits could be overcome by replicating existing studies in different contexts and countries and expanding the scope of research to insufficiently studied issues. For other important questions, the information base is frequently very thin. Assessing net policy benefits requires detailed information on transport costs and its components which are often crudely estimated rather than carefully documented. It will thus be important to better coordinate data collection, the supply of research efforts and the demand from policy makers.  It is nevertheless encouraging to see the renewed and growing interest in transport research applied to developing countries.[1]

For more information:

Berg, C., U. Deichmann, Y. Liu, and H. Selod (2015) “Transport Policies and Development,” World Bank Policy Research Working Paper 7366.