Home > Content > Does transport investment create jobs and lead to economic growth?

Does transport investment create jobs and lead to economic growth?

By Pavlina Dravecka / Updated: 22 Sep 2015

by David Scotney, Research Associate at the Transport Research institute, Edinburgh Napier University

At this time of economic problems in many countries in Europe, governments are searching for ways to create employment and boost the economy – and many look to investment in major transport infrastructure (railways and motorways) to do this.  Even in relatively prosperous Sweden, for example, a 30 billion Swedish Kroner (3.48 billion Euro) scheme to build a new railway from Stockholm to Linkoping, 200km to the southwest, was recently announced, with the aim of creating jobs and economic growth.  Over many years, hundreds of new transport schemes have been justified on the same basis.  But can we be sure that investing in such projects really will grow the economy?

The basic theory is compelling: invest in big transport schemes, cut travel times and improve reliability, increase accessibility, and as a result industry will become more efficient, labour markets will become bigger, and the economy will grow.  But, as a group of learned government advisors[1] said in their 1999 report in the UK,

Empirical evidence of the scale and significance of such [effects] is, however, weak and disputed… Our studies underline the conclusion that generalisations about the effects of transport on the economy are subject to strong dependence on specific local circumstances and conditions.

In other words, the theory makes sense, but trying to find evidence that it is true is very difficult indeed and local circumstances are critical.  For example, a 2010 study looked at 102 road investments in Norway and could find no link between them and changes in local economies near these new road schemes. The graph below shows that for all EU countries, Switzerland and Norway it is hard to find any link between GDP and length of motorway per land area; the same is true of high speed rail (in the diagram each country is shown by a blue dot).

Motorway length and GDP EU 15

Why is this?  A few reasons are outlined below:

  • Most large transport investments are in the shape of a line.  This means that they only improve accessibility along that line and then only at the stations or junctions on the line.  Depending how many people live along the line, the investment may have only a small effect on accessibility across the country or region as a whole.  In addition, while places on the line will benefit from a relative increase in accessibility, places away from it will have a relative decrease – with possible negative economic effects.
  • For most industries there are many more important factors than travel times and costs that affect their profitability. Availability of quality labour is often key and, while transport improvements can help to increase the size of a labour market, the quality of local education, or the quality of life in an area in general, is often much more important in producing and retaining a quality labour force.
  • People and goods can travel in both directions on a new road or railway.  So, even if it was built to improve the economy of a poor region, the road or railway may just make it easier for companies in nearby more prosperous regions to compete with those in the poor region; or to attract shoppers from the poor region to better shopping opportunities in wealthier areas.  A company may be able to close down its local factory in the poor region and supply that region from its main factory in the wealthier region nearby.
  • Investments in new networks will normally benefit most the places at the centre of those networks – places that are already more prosperous. For example, the high speed rail network in Spain has made Madrid far more accessible than any other location, but Madrid was already more wealthy than most other areas of Spain.
  • Journey time reductions brought about by investing in new transport are not always used to make production or work more efficient.  Instead, people just spend the same time travelling, but travel further.  This increases CO2 emissions and other environmental impacts.

Now, what about the jobs that are created by actually building transport infrastructure (as opposed to wider economic effects)?  Well of course people have to be employed to build new railways and roads, but the limited research that has been conducted on this topic shows, not perhaps surprisingly, that it is small scale projects in urban areas (traffic calming, building footpaths and cyclepaths, small traffic management schemes) that create the most jobs in building them per Euro invested.  This is because in small schemes less can be done by big machines and more has to be done by hand.  In addition, international companies are often appointed to build big schemes because local companies do not have the skills or capacity and indeed sometimes there is no local supplier at all (how many EU countries have factories building high speed trains, for example?).  With small, local schemes, small local suppliers are in a much better position to compete, so less of the investment leaks out of the local economy.

So, while large transport schemes may appear to provide an attractive way to create more employment and to boost the economy, the available evidence is actually far from clear on this. And what's more, in terms of generating jobs during the construction phase, investing in small scale transport infrastructure is likely to be a more beneficial proposition in terms of boosting the local economy and employment.

Share on