Transport economics Why is transport important?

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Transport economics

Why is transport important?1
Transport is something we all take for granted. Try to imagine a world where transport was difficult.
Say the average speed of passenger transport was 6 miles an hour and freight 3 miles an hour. How would the world be different?
The situation above was the case in the UK less than 200 years ago. Today we complain if we can’t do 90 mph on the motorway because there are other cars in the way.
Look at the following questions and try to find out the answers from published statistics. (Try the DETR web site at for statistics.)
How many people work in the transport industry?
How far do people travel each year and for what purpose?
How much freight is moved each year.
Where is the freight moved to and from and how is it moved?
What is the relationship between the demand for transport and the level of national income?
What are the main trends in transport use at present?

Why is transport economics important?
In 1975 there were fewer than ten academic economists specialising in transport. Today there is an A level course in it. Why has the focus changed so much?
One answer is that people have realised that transport is essential to the smooth running of the economy:
 If goods cannot reach their markets then people cannot specialise and so overall output and so income would be lower.
 If transport is expensive then the price of goods will rise and demand will be less. This will imply lower standards of living.

 If people cannot move freely around the country their choices are restricted and the quality of their life will be lower.

These are all reasons why we need a good transport system, but there is another way to look at it. People gave little thought to transport during the period when rising demand for transport was simply met by raising the capacity of the system. Today the system is finding it difficult to cope and the negative effects of transport are evident. Economists only took an interest in transport when it became a problem:
˙ Transport causes negative externalities. Loss of land, noise, pollution, global warming, accidents and blight are all examples.
˙ Congestion is also a negative externality and leds to higher stress levels as journey times take longer.
˙ Demand for transport is rising as more and more people demand their own independent means of transport. The system of roads cannot cope and public transport is seen as an expensive, dirty and awkward alternative.
Transport, like any other sector of the economy, demands scarce resources to use. The question is what is the efficient allocation of resources to transport? If we leave it to the market we are likely to see a misallocation due to the many negative externalities. People want to travel more, however, and so the problem is acute as we reach the limit of the transport system to cope and global warming becomes a more immediate problem.

The nature of transport
Two elements of transport
There are two areas of concern;

1. Transport infrastructure

2. Transport type.
Transport infrastructure
This refers to the physical and immovable transport routes such as roads, railways and canals. It also includes airports and sea ports as the terminals of air routes and sea routes.

The ability of households, firms or government to consume transport services depends on the available infrastructure.

Transport type
This refers to the mode of transport such as walking, bicycles, motor cars, trains, aeroplanes, boats and ships.
Together these two factors meet the demand for transport services in the economy. The availability of one does not mean that the transport service can be provided efficiently, e.g. having a car does not help a lot when there are no roads.
In most cases the provision of infrastructure is left to the government because of the problem of public goods and the externalities that transport systems cause, e.g. noise and pollution. The private provision of transport infrastructure is becoming more common, e.g. the channel tunnel, but usually involves government consent.
Trends in transport use
The main modes of transport are;

Road, Rail, Water and Air.

In each case there are various alternative ways of using the modes and over the last forty years there have been changes in the way these modes have been utilized, and the intensity of their use.
Road transport

In 1996 total motor traffic was estimated at 438,300 million vehicle-km (i.e. total km driven by all vehicles on UK roads.) This represents a large increase since 1950, mainly due to a rise in the use of cars. Road traffic in the UK has grown by 87% since 1980, although it has grown at a slower rate since 1990 than before. In 2007 motor traffic had reached over 110,000 million (110 billion) vehicle-km.

The bulk of road transport use is private cars. In fact motorcycles and pedal cycles have declined in numbers absolutely and bus and coach traffic has declined relatively since 1990. In 1996 68.8% of households had the regular use of a cars, with 23% having the use of two or more cars. At the end of 1992 24.8 million vehicles were licensed for use in Great Britain, by 2007 this number had risen to 34 million, of these 28.2 million were cars.

A major change has been the number of cars per household. The data below shows this and explains the rapid rise in car numbers (and so congestion).

These vehicles used 386,631 km of roads of which 3,270 km are trunk motorways. Motorways represent less than 1% of total road length, but carry 15% of all traffic.
The demand for the use of roads is expected to rise rapidly. The traffic forecasts published in 1997 (remarkably the last ones!) suggest that there will be between a 36% and 84% increase in traffic over 1996 levels by 2031. The central forecast suggests a 28% increase in the period to 2010, this was raised to 35% after the scrapping of the automatic Fuel Duty escalator. The largest proportional increase is expected in goods vehicles, but the biggest impact will be made by cars, rising between 30% and 75%, which constituted 82.7% by vehicle km’s. The largest increase in traffic is expected on motorways.
By 2031 93% of motorways and 38% of trunk and principal roads are expected to be at capacity during the morning peak. This implies a 69% rise in journey times on urban motorways, 20% on rural motorways and around 6 - 7% on other major routes. For 2010 the central estimate implies a 65% increase in congestion on 1996 levels.
Transport was until around 1990 a luxury good. Private transport mileage rose faster than GDP, reflecting an income elasticity of demand of more than 1 (1.6 for car traffic and 1.7 for all traffic between 1984 and 1994). As the first chart above shows transport now has a slower growth rate than GDP, implying it is a normal good with an income elasticity of around 0.8. However by 2031 it is estimated that car ownership per head will have risen by 41% over the 1996 level.

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