Transportation Infrastructure, Industrial Productivity and ROI

Transcription

1 Transportation Infrastructure, Industrial Productivity and ROI Jeff Eloff Oleg A. Smirnov Peter S. Lindquist Mid-Continent Transportation Research Forum September 6, 2012

2 Contents 1 Why public infrastructure? Current Conditions 2 Current Methodologies Geographic Scale Public Capital Creation Types Public Capital 3 Data Methodology Software 4 Profit Margin Profit Margin Model Results Aggregate Production Function Aggregate Production Function Results Analytical Cost Function Cost Function Results 5

3 Why public infrastructure? Current Conditions Why Public Infrastructure? The Importance of Public Infrastructure: 1 Quality of Life 2 Productivity of Business 3 Economic Growth

4 Why public infrastructure? Current Conditions US Transportation Conditions How are we doing? 25 th compared to other OECD nations in terms of quality Traffic Congestion worse than Western Europe Road fatality rate 60% above OECD average 33,000 Americans in 2010 Airport delays increasing problem

5 Why public infrastructure? Current Conditions US Transportation Infrastructure Investment Trends Investment trends... Total expenditures have fallen steadily over the last 60 years From 5% in the 1960 s to 2.4% of GDP today Europe invests 5% China: 9%

6 Investing and Maintaining Why public infrastructure? Current Conditions US spends more than twice per person as Britain on new construction Spend 25% less on maintainence

7 Why public infrastructure? Current Conditions Our Future Additional $20 billion needed per year to maintain current system! Census Bureau projects population growth of 40% over the next 40 years! In real terms, spending fell an average of 1.6% per year from 2003 to Need for more methods and approaches to better guide investment decision making.

8 Current Methodologies Geographic Scale Public Capital Creation Types Public Capital Much work has been done! Starting with Aschauer [1] in 1989 Many followers a bit of a methodological debate Three main classifications of the literature readily emerge: 1 Methodology 2 Scale 3 Way in which Public Capital is measured and defined

9 Methodological Divisions Current Methodologies Geographic Scale Public Capital Creation Types Public Capital Three major methodological branches: 1 Production Outputs vs inputs, with inclusion of public capital 2 Cost Dual also take public capital as exogenous, but a determinant of costs 3 VAR Essentially reduced form models of production, demand and policy functions Easy to mis-specify, fail to identify external shocks to system Not directly comparable to other models

10 Current Methodologies Geographic Scale Public Capital Creation Types Public Capital Scale Divisions Many studies vary the scale of analysis: International National Regional Sectoral Hypothesized that the magnitude and significance of the results of public capital impacts on productivity vary based upon the level of [geographic] aggregation due to the presence of spatial spillovers being captured in the data.

11 Current Methodologies Geographic Scale Public Capital Creation Types Public Capital Public Capital Measures The way in which the literature classifies public capital varies greatly depending upon the study Highway spending Public Investment Net Stock of non-military capital And many more Common to nearly all is the conversion of the expenditure data (flows) into capital stocks by means of PIM. This necessitates: 1 Gross Investment 2 Initial Benchmark 3 Depreciation Rates

12 Current Methodologies Geographic Scale Public Capital Creation Types Public Capital Our Goal Aim to uncover which geographic areas, when invested in, will prove most beneficial to industry. Determine magnitude and extent of benefits to manufacturing industry that arise from investments in transportation infrastructure. Interested in spatial variation of benefits. Benefits to industry in terms of: Profit Margins Output Industry Costs

13 Current Methodologies Geographic Scale Public Capital Creation Types Public Capital Public Infrastructure Defined: Sum of annual State and Local Government expenditures on: 1 Streets 2 Waterports 3 Airports

14 Data Outline Data Methodology Software Two Major Sources: Annual Survey of Manufactures (ASM) Geographic Area Statistics NAICS Data from Industry Structure Government Finance Series Annual Transportation Expenditures by State and Local Governments

15 Methodology Outline Data Methodology Software We estimate two spatial econometric models: 1 Profit Margin Model Spatial Error Panel Model via KKP s GMM routine 2 Production Function Model Elhorst s Maximum Likelihood Spatial Lag Panel Model And combine the results of each to analyze Cost...

16 Data Methodology Software Software Estimation for each: Profit Margin estimation Python 2.7 Production Function Model MATLAB R2011b Visual Representation ArcGIS 9.3.1

17 Profit Margin Aggregate Production Function Analytical Cost Function Profit Maximizers We assume that all firms engaging in the industry are profit-maximizers. A profit-maximizing firm chooses the level of inputs and outputs in such a way that maximize economic profit. This is to say that any given firm partaking in the market strives to make decisions in such a way that cause the separation between total revenue (TR) and total costs (TC) to diverge as far as is possible given current available technology. Since industrial activity takes place in space we expect that there exist some market interactions, agglomerations and thus that the data contains temporal correlation, spatial dependence and spatial spillovers.

18 Profit Margin Aggregate Production Function Analytical Cost Function

19 Profit Margin Model Outline Profit Margin Aggregate Production Function Analytical Cost Function Therefore, the model takes the form: π i,t = α + β 1 emp i,t + β 2 lnp L,i,t + β 3 lnp M,i,t + β 4 σ PFuel,t + β 5 P Fuel,t + β 6 lnk i,t + β 7 lng i,t + β 8 lnḡ i,t + u i,t u i,t = ρ(i T W N )u i,t + ɛ i,t (1) ɛ i,t = (e T I N )µ i + ν t

20 Profit Margin Model Variables where: π i,t is defined as 1 totalcost totalrevenue Profit Margin Aggregate Production Function Analytical Cost Function emp i,t is state i N s average firm size P L,i,t and P M,i,t are labor and materials prices σ P Fuel,t is the average annual standard deviation of national weekly average fuel prices P Fuel,t is the national annual average retail gasoline price K i,t is private capital expenditures G i,t represents the sum of transportation capital expenditures and Ḡ i,t represents the spatial lag of these transportation expenditures.

21 Profit Margin Aggregate Production Function Analytical Cost Function TABLE 1: Profit Function Estimation Results Variable Coefficient Std-Error P-Value Elasticity α * firmsize * ln(p L ) * ln(p M ) σ PFuel P Fuel * ln(k) * ln(g) * ln(ḡ) * ρ R Breusch-Pagan LM-Statistic 2.77e 10 Chi-Squared Probability 0.99 Degrees of Freedom 8

22 Outline Profit Margin Aggregate Production Function Analytical Cost Function Own State Public Capital Elasticities

23 Outline Profit Margin Aggregate Production Function Analytical Cost Function Neighboring State Investment Benefits

24 Profit Margin Aggregate Production Function Analytical Cost Function

25 Production Function Model Profit Margin Aggregate Production Function Analytical Cost Function We estimate a production function as it allows us to examine the relationship between inputs and outputs: lny i,t = α + ρwlny i,t + β 1 lng i,t + β 2 lnḡ i,t + β 3 lnk i,t + β 4 lnp L,i,t + β 5 tlnp L,i,t + β 6 D 06 + ɛ i,t ɛ i,t = µ i + ν t (2)

26 Profit Margin Aggregate Production Function Analytical Cost Function Table 2: Production Function Estimation Results Variable Coefficient P-Value α * lng * lnḡ * lnk * lnp L * tlnp L D ρ * R Breusch-Pagan LM-Statistic Chi-Squared Probability Degrees of Freedom 6

27 Jeff Eloff Oleg A. Smirnov PeterFigure S. Lindquist : Theme Transportation bars Infrastructure, Industrial Productivity and ROI Outline Profit Margin Aggregate Production Function Analytical Cost Function

28 Jeff Eloff Oleg A. Smirnov Peter Figure S. Lindquist : Theme Transportation AntibesInfrastructure, Industrial Productivity and ROI Outline Profit Margin Aggregate Production Function Analytical Cost Function

29 Profit Margin Aggregate Production Function Analytical Cost Function Cost Function Traditionally examined in a [dual] cost based framework Substituting the profit margin and production functions into this expression yields: π i,t = 1 TC i,t Y i,t TC i,t = Y i,t Y i,t π i,t

30 Profit Margin Aggregate Production Function Analytical Cost Function Cost Function Results Assume 1 percent increase in own state public capital Y (Table 2) π (Table 1) TC =

31 Profit Margin Aggregate Production Function Analytical Cost Function Neighboring Public Capital on Cost Assume 1 percent increase to Neighboring State Public Capital: Y (Table 2) π (Table 1) TC = 0.44

32 Profit Margin Aggregate Production Function Analytical Cost Function Cost Function An Increase in G or Ḡ benefits both Output and Profit Margins Ḡ Twice the Effect of Own State Expenditures Neighboring Capital is free Out-Of-State Users Do Not Pay Taxes for Neighboring State Expenditures

33 Public Capital Significant Reduces MFG Production Costs Increases Profit Margins Significant Spatial Spillovers Appear to be increasing over time

34 Sources [1]Aschauer, D. (1989). Is public expenditure productive?. Journal of Monetary Economics, Vol. 23, No. 2, pp [2]Treasury, Dept of (2010). Economic Analysis of Infrastructure Investment. [3]Baird, Brian A. (2005). Public Infrastructure and Economic Productivity A Transportation-Focused Review. Transportation Research Record, 1932, [4]Pereira, A. M., & Andraz, J. M. (2010). On the economic effects of public infrastructure investment: A survey of the international evidence. College of William and Mary: Working Paper Number 108.

35 Questions? Comments?