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Transportation and Development Local, Regional and National Perspectives Is the Transport Sector Important to Development? Value added by transport is estimated to account for 3 to 5 percent of GDP. Public investment in transport typically accounts for between 2.0 and 2.5 percent of GDP and may rise as high as 3.5 percent in countries modernizing outdated transport infrastructure or building new transport infrastructure Transport likewise commonly accounts for 5 to 8 percent of total paid employment Public Infrastructure Investment Is Large Proportion of Total and Public Investment in Developing Countries 60 50 Total Investment Public Investment Percentage 40 30 20 10 0 Low Income Middle Income Countries with Decentralized Road Maintenance Have Better Roads 40 35 Percentage 30 Unpaved Roads Paved Roads 25 20 15 10 5 0 Centralized Decentralized Is Transport Sector Important to Development? Demand for freight and passenger transport in most developing and transition countries is growing 1.5 to 2.0 times faster than GDP -the bulk of this increase is for road transport. Although demand for freight transport (except air transport) in industrialized countries grows less rapidly than GDP, in developing and transitional countries the growth rate is closer to that for passenger transport In 1996 private sector lending to emerging markets peaked at $196 billion. Since then it has fallen sharply and estimates for 1999 are just over $17 billion. Transport Sector Issues Globalization of trade. Advances in international logistics (for example, multimodal transport technology, e-documentation, streamlined customs procedures, etc.) have greatly expanded the scope for international trade in goods and services Congestion and pollution: Growing road congestion, particularly in cities, generates pollution and increases road accidents (about 500,000 persons per annum are killed in road accidents Transport Sector Issues Transport sector deficits: Poorly managed public transport services impose a heavy burden on public finance (for example, until recently, the transport sector deficit in Zambia absorbed 12 percent of the government’s total current revenues) Expenditure needs: Large sums of money are required to maintain and modernize existing transport infrastructure (for example, road spending alone often accounts for 10 percent to 20 percent of the government’s development budget) What Do We Know about Transport and Development? Certain minimum level of transport is essential to allow development Generally accepted: necessary but not sufficient condition for development No general agreement about size of transport sector and its causal relationships with other sectors Remain uncertain about its inducement properties and role as catalytic agent Investment Strategies Supply Strategy- if we create transport infrastructure we assume that it will create its own demand This strategy not always realistic because it raises the issue of lag and lead effects Does transport lead or lag behind development? Best to view this as a circular, mutually reinforcing process Lag and Lead Effects: Circular and Mutually Reinforcing Process Development Time II Development Time I Transport Investment Transport Impacts Economic Allows market development Extraction of resources Stimulates employment Political Facilitates administration Promotes national integration Social Information diffusion Communication Transport Impacts on Economic Growth Transport Improvements Commodity Market Labor Market Expansion New Activities Growth Economic Production and Specialization Region B Region A Self Reliance Regional Trade Trade and Transport International Trade Trade and Transport Product A Product B Product C Product D Product E Gateway Possible Effects of Transport Improvements Positive Growth- reduction in resource expenditure for distribution; prior dynamism argument-growth capacity already present transport releases tight constraint Slowing Growth- use of scarce resources instead of investing in alternatives-lost opportunity costs; overinvestment in sector Negative Growth- access encourages new competition and new products enter market from outside; depress local industries Impact of Transport Cost Reductions on Inequality Center B Inequalities C Globalization Transport Costs A Inequalities and Transport Costs Improvements in transport and reduction in costs imply two major consequences: 1/ exploitation of comparative advantage and 2/ development of economies of scale Diagram A- High transport costs and relatively low level of inequalities Diagram B- As transport costs are reduced, inequalities are likely to increase since economies of scale are the first to benefit Diagram C- further improvements in transport infrastructures favor a more efficient use of comparative advantages, a relocation of economic activities in the periphery and a wider access to the markets of the center. The likely outcome is a decline in inequalities Process Model of Transport’s Role in Regional Development Stage I- Road development-often simpleplays role in administration, political cohesion, and extracting natural resources Stage II- Road transport important but rail begins to compete- more stable system with intent to link and secure regions more broadly Stage III- Road again is dominant as links penetrate often remote rural areas to allow delivery of health services and marketing Ideal Typical Sequence of Transport Development A B C D E F Challenges and Trends in Rural Transport Lack of Rural Transport Policy and Strategy Weak Management Capacity at Local Levels after Decentralized Decision-making Inadequate Financing and Standards Planning and Selection Processes have Withered Away Promoting Private Provision of Rural Transport Services Promoting Non-motorized Transport