Economic Development Impacts

Evaluating Impacts On Productivity, Employment, Business Activity and Wealth


TDM Encyclopedia

Victoria Transport Policy Institute


Updated 17 December 2014

Economic Development refers to progress toward a community’s economic goals, such as productivity, employment, business activity, property values, investment and tax revenues. This chapter examines how transportation policy and planning decisions affect economic development, and ways to evaluate these impacts. It examines how Transportation Demand Management can support economic development objectives. For additional information on this issue see the more detailed report Evaluating Transportation Economic Development Impacts, (Litman 2010).



Contents. 1

Introduction. 1

Defining and Evaluating Economic Development 2

Transportation Economic Impacts. 5

Vehicle Travel Impacts On Economic Development 8

Evaluating Transportation Demand Management Impacts. 10

Evaluating Transportation Expenditures. 12

Evaluating Transportation Facility Investments. 16

Evaluating Automobile Industry Subsidies. 22

Transportation Pricing Reforms. 24

Evaluating Social Welfare Impacts. 28

Economically Harmful TDM.. 30

Decoupling Economic Growth and Transport Activity. 31

Examples. 31

Best Practices. 33

Conclusions. 34

References and Resources. 35




Economic Development refers to progress toward a community’s economic goals, including increased productivity, employment, competitiveness, property values, business activity, investment and tax revenues (in this case community can range in scale from individual households to cities, regions, nations or even the entire world). Exactly what constitutes economic development can vary. For example, some communities may emphasize employment and wage growth while others may value higher property values and tax revenues.


Transportation affects economic development in a variety of ways, and particular transport policies and planning decisions are often influenced by economic development objectives. For example, transportation facility investments are often promoted as economic development strategies, and some Transportation Demand Management strategies, such as increased fuel taxes, are criticized as economically harmful. Such claims are sometimes exaggerated or inaccurate.


Public policies and investments that improve transportation facilities and services often provide real savings and benefits to businesses and consumers, and so are legitimate economic investments. In many situations, governments are uniquely able to coordinate resources (such as road and rail rights of way) and stakeholders (such as various jurisdictions, private companies, existing residents) to create economic value. It is important to have appropriate tools for evaluating these benefits to determine what type and amount of transportation policies and investments are optimal.


Special care is needed to accurately evaluate transportation economic development impacts since many impacts are indirect, that is, there may be several steps between a particular policy or planning decision and its ultimate impacts on employment, business activity and wealth. Many economic development impacts are economic transfers, cost or benefit shifts from one group to another; it is important to consider of these factors in evaluation.


This chapter discusses these issues in detail. It defines economic development, discusses how economic impacts are evaluated, identifies ways that transportation decisions affect economic development, discusses Transportation Demand Management economic impacts, and describes ways to incorporate economic development objectives into transport policy and planning decisions.



Defining and Evaluating Economic Development

Economic analysis is concerned with tradeoffs between competing uses of scarce resources (money, time, land, etc.), and how such decisions affect social welfare. This is important for transportation policy and planning decisions, which often affect resources directly (for example, the financial, labor and land costs of building transport facilities), and indirectly by influencing future travel behavior.


People sometimes mistakenly believe that economics only concerns material wealth and money, but its ultimate goal is to maximize social welfare, that is, overall human happiness. Economics can therefore be considered the science of happiness.


Economic growth generally reflects material wealth but economic development reflects qualitative factors including human health, environmental quality and equity (Sustainability). Commonly used economic indicators such as Gross Domestic Product (GDP) and average income are criticized because they only measure material wealth measured in monetary units (business productivity, income, property values, etc.), and perversely count medical costs and environmental cleanup as positive economic activity but assign no positive value to actions that prevent illness or environmental degradation. A broader scope considers a broader set of indicators, such as human health and longevity, educational attainment and Equity as indicated by the differences in outcomes between advantaged and disadvantaged groups, such as the Human Development Index and the Genuine Progress Indicator, take into account qualitative and non-market values, and so can better reflect overall human welfare.


Economic analysis often focuses on market goods (goods bought and sold) and ignores non-market goods. For example, congestion delays are considered economic impacts if they increase the costs of business travel but not personal travel, and crash damages are measured based on property damages, medical costs and lost productivity, but not pain and suffering costs are. This distinction is sometimes arbitrary or backwards, since it implies that purchased goods (such as paid housecleaning and purchased produce) are more important and deserving of public support than other goods (such as personal housecleaning or home-raised produce).


The relative importance of monetary wealth tends to decline as people become wealthier due to diminishing marginal benefits. For example, people gain significant welfare as they rise from poverty to middle-incomes, and so are able to satisfy their basic material needs for healthy food, adequate shelter and good medical care, but rising from middle-incomes to high-incomes provides far less additional benefits because their most important needs are already met, so an increasing portion of the additional resources are devoted to positional goods that provide little net benefit, since gains in status to people who consume the good reduces the relative status of their peers (Litman, 2006). Described differently, as wealth increases the relative value of non-market goods (health, family, friends, environmental quality) tend to increase. Similarly, as mobility increases the incremental economic benefits of additional mobility tends to decline, since people have already satisfied their most important travel needs, while the value of improvements to alternative modes (the ability to walk, bicycle and use public transit) may increase.


Table 1 defines various economic development objectives and describes Performance Indicators for evaluating them. Not all objectives and indicators need be used in every analysis, they should be selected to reflect the goals of a specific community or study. Indicator values can be presented in various ways, including total, per capita and per employee; comparisons with peers; changes over time; and relative to targets.


Table 1            Economic Development Objectives and Indicators




Gross domestic product (GDP) and variations such as gross regional product (GRP).


Cost efficiency relative to competitors.


Employment or unemployment rates. Often measured as “full time equivalents” (FTEs)


Average wage rates. Average incomes.

Business activity

Gross business sales volumes.


Net business profits.

Property values

Value of land and buildings.


Value of capital investments

Tax revenues

Value of taxes paid.


Transport costs relative to income. Transport expenditures by income class.

Social & health outcomes

Education, health, longevity, crime rates, housing quality, public services, etc.


Poverty rates, differences in outcomes between advantaged and disadvantaged groups.

Social welfare

Changes in self-reported life-satisfaction ratings.

This table summarizes various economic development objectives and their indicators suitable for evaluating economic development impacts. Not all impacts are considered in every evaluation.



Economic analysis is affected by scope and perspective since many impacts are actually economic transfers, costs to one group that are benefits to another. For example, vehicles and fuel expenditures are costs to the businesses and consumers that purchase these costs, but benefits (revenues and profits) to the industries that sell them. However, increasing efficiency (reducing the expenditures on vehicles and fuel needed to achieve a desired amount of mobility and accessibility) provides net benefits. Generally, economic analysis should consider total impacts, identify how  these impacts are distributed, highlight impacts considered most important (for example, because they affect local communities or a particular group).


Some specific terms are used in economic analysis:


·         Goods are any product or service that people consume. Transportation can be considered a good, and transport activity (walking, cycling, driving, public transit travel, etc.) can be considered a type of consumption.


·         Markets are any situation in which goods are traded or provided. For example, the transportation market includes all components of the transport system that support mobility, including paths and roadways, parking facilities, vehicle manufacturing and servicing, ports and airports, travel and freight services, and even telecommunications.


·         Economic impacts refers to costs and benefits. Costs are resources consumed in the production of goods, which can include market goods (goods commonly traded in a competitive market) such as money, people’s time, and land, and non-market goods such as comfort, safety and environmental quality. Benefits are desired outcome, including access to destinations, and reductions in costs such as congestion, accidents and pollution. Prices refers to the costs perceived consumer costs, that is, costs which directly affect consumption decisions.


·         Efficiency refers to the ratio of benefits to costs. Economic efficiency refers to the degree to which prices reflect marginal costs (the total incremental costs to society of producing that good), and therefore the degree to which consumers directly perceive the costs imposed by their consumption decisions.


·         Economists make a distinction between true resource costs (total resources are reduced or increased) and economic transfers (resources are shifted from one group to another). For example, Road and Parking pricing represent economic transfers that shift money from one group (people who pay) to another (those who receive the revenues) – the economic costs are any transaction costs (fee collection costs) and changes in the amount of parking consumed.


·         Equity refers to the distribution of economic impacts and the degree to which that is considered appropriate and fair.


·         Market Principles are basic guidelines used to evaluate market system efficiency and equity. Policies that reflect these principles tend to increase economic efficiency and so tend to support economic development. For example, improved consumer options, cost-based pricing, and more neutral planning practices reflect market principles and so tend to support economic development objectives.



The economic analysis is often affected by the definition of the baseline (also called the base case or null option), that is, the conditions that are assumed to occur without the proposed policy change or program. For example, if a million dollars in public funds were not spent on a highway project, would taxes decline or would the money be spent on other government programs, or on other transportation programs?



Transportation Economic Impacts

Transportation affects economic development in various ways.


·         Economic productivity. Transportation is an essential input (cost) in most economic activity, since it allows resources to be delivered to factories, employees to commute to worksites, goods to be delivered to markets, and customers to access stores and other commercial services. Reducing transportation costs used in the production of goods and services tends to increase economic development. For example, reducing traffic congestion reduces business shipping costs, and reducing parking requirements reduces building development costs, which can increase economic development.


·         Project expenditures. Transportation projects and services generate direct short-term employment and business activity. For example, building roads and providing public transit services generate jobs and business activity, although they generally have net employment losses (the tax burden reduces more jobs than generated by the expenditures). However, public jobs creation can be justified in economic depressed areas or times, in which case the question is which type of spending provides the greatest combination of employment benefits and other benefits to society.


·         Future expenditures. Transportation goods and services represent a major share of expenditures for many households, businesses and governments, and so affect fiscal burdens, affordability and trade balances. Expenditures on vehicles and fuel tend to provide fewer regional jobs and less business activity than most other goods, particularly if they are imported from other regions. For example, reducing consumer and business expenditures on vehicles and fuel reduces import costs and increases the amount of money circulating in the regional economy, increasing regional economic development.


·         Transportation industries. Transportation-related industries (vehicle and fuel production, vehicle sales and servicing, shipping) can generate employment and business activity. These industries support regional economic activity, particularly if their output is exported or substitutes for imports.


·         Economic opportunity. Transportation allows people to access economic opportunities such as education, employment and affordable goods. For example, transit service improvements may allow people to obtain additional education and jobs.


·         Location decisions. Accessibility, and therefore transportation decisions, affect the location of economic activities such as businesses, jobs and housing, and therefore the value of land and buildings. Improving access to areas with undeveloped resources (including land for housing or businesses, and tourism activities) tends to increase economic development.


·         Affordability. To the degree that transport policies or projects increase Affordability (for example, improvements in alternative modes reduce the need to drive, and unbundled parking reduces housing costs) the result is equivalent to an increase in consumer income, particularly for lower-income households.



Transportation polices and planning decisions have direct and indirect economic impacts. Direct impacts include the resource costs, jobs and business profits that result from transportation projects and programs. Indirect impacts include economic impacts caused by changes in travel activity, accessibility and consumer expenditures that result from a policy or project. In some cases there may be several steps between a particular transport policy or project and some economic impacts, introducing uncertainty in the evaluation process. For example, improving urban fringe highways or transit services can improve access to that area, which may stimulate more land use development there, which increases property values and tax revenues; exactly how much will depend on many factors, including the degree to which accessibility improves, the demand for urban fringe development, and future tax rates.


Table 2            Direct and Indirect Transportation Economic Impacts

Direct Impacts

Indirect Impacts

Resource costs (materials and land used for facilities and services)

Program wages

Program business activities

Changes in industrial productivity

Changes in consumer expenditures

Changes in economic opportunity (education and employment)

Changes in land accessibility and property values

Changes in external costs and economic efficiency

Transportation policy and planning decisions have both direct and indirect economic impacts.



It is relatively easy to determine the direction of economic impacts. For example, all else being equal, reducing transportation costs for a particular industry generally increases its efficiency, resulting in some combination of increased productivity, wages and profits. Quantify these impacts is more difficult. Various techniques can be used to evaluate the economic impacts of a transport policy or project (Weisbrod, 2000; Weisbrod, 2007):


·         Transportation Models predict travel activity impacts (changes in when, how and where people travel), and so can predict changes in transportation costs such as congestion, fuel consumption and accidents. These benefits can be compared with project costs to calculate Net Present Value and other economic indicators.


·         Input-Output tables and other econometric models predict how changes in expenditures affect economic activity in a particular geographic area or industry (REMI, 2005). These can be used to calculate incremental changes in employment, profits and tax revenues.


·         Real estate market analysis can be used to predict changes in property value due to improved access and local traffic impacts (Smith and Gihring, 2006). This can predict property tax revenue impacts.


·         Fiscal impact analysis evaluates how incremental public infrastructure and service costs compare with incremental government revenues from development fees and taxes (Edwards 2000; NRDC 2001).


·         User and market Surveys can be used to determine how people respond to, or expect to respond to, specific transportation system changes, the value they place on these changes (such as whether they consider themselves better or worse off), impacts on their costs and expenditures, and user recommendations for improvement.


·         Case Studies can be used to evaluate the impacts of particular policies and projects in order predict the impacts in similar situations, and to identify problems and potential  improvements.



Transport Economic Impacts – Example

This describes economic development impacts of changes in physicians’ transport patterns.


During the early Twentieth Century most physicians shifted from horse-drawn buggy travel, which averages 5-10 miles-per-hour (MPH), to automobile travel that averages 10-20 MPH. This increased their daily patient visits, increasing their productivity (medical services provided per physician). As roadways improved, average travel speeds increased further, further increasing physician productivity.


As vehicle ownership became more common, more patients could travel to their physician’s offices, which further increased their productivity, although this was partly offset by increased transport financial and time costs to patients.


Increase automobile expenditures stimulated some industries (vehicle and fuel production) and regions (where these industries exist) but reduced other types of economic activity (reduced consumption of horse feed caused farm incomes to decline, which contributed significantly to the Great Depression).


As automobile transport increased, medical problems from accidents, pollution and sedentary living increased, which offset some of the productivity gains. Although physicians could treat more patients per day, some of those patients only required treatment because of increased automobile transport. Conventional economic indicators, such as Gross Domestic Product, measure the increased medical expenditures as economic benefits, but not the economic costs of these damages and illnesses.


More automobile-oriented land use development increases the amount of vehicle travel required to reach medical services, increasing consumer transportation costs. This does not significantly affect higher-income motorists, who own vehicles and can afford the expenses, but is a significant burden to many people who cannot drive or have limited budgets. Conventional economic indicators consider these additional transportation expenditures as an economic benefit and do not generally recognize the inequitable cost burdens.


As consumers drive more and consume more fuel, vehicle and petroleum import costs increase. This tends to reduce regional economic development (employment, wealth and investment) by reducing the dollars circulating in the regional economy. Conventional economic indicators consider these impacts, but they are often ignored in transport planning evaluation, which does not generally account for indirect and long-term economic impacts.



Vehicle Travel Impacts On Economic Development

People sometimes assume that, since motor vehicle ownership and use tend to increase with economic development and wealth, vehicle travel causes economic development and demand management strategies that reduce vehicle travel are economically harmful. However, this misrepresents the issue (Litman and Laube, 1999). Although some vehicle travel is efficient and productive, a majority share is economically inefficient and would be reduced in a more efficient transport market.


Economic analysis should reflect net marginal benefits, that is, the incremental benefits of an additional unit of transport activity, taking into account both costs and benefits. Transportation tends to experience declining marginal benefits, meaning that once an area or group enjoys a basic level of accessibility, incremental transport improvements generally provide only modest additional economic development. Other infrastructure improvements (education, electricity, Internet access, etc.) may provide greater economic returns.


Table 3 identifies basic requirements for an efficient market and common transportation market distortions. These distortions result is economically excessive vehicle ownership and use (“excessive” meaning more than would occur in a more efficient market) which reduces overall productivity and economic development. This is not to suggest that motor vehicle travel is bad or would stop altogether in an optimal market, automobile travel is an efficient option for many trips, but in more efficient transport markets consumers would drive less, use alternative modes more and be better off overall as a result (Litman, 2009).


Table 3                        Transportation Market Distortions (Market Principles)

Market Requirements

Common Transport Market Distortion


Choice. Consumers need viable choices, and information about those choices.


Consumers often have few viable alternatives to owning and driving an automobile, and living in automobile dependent communities.


Competition. Producers must face competition to encourage innovation and efficient pricing.


Most roads and public transit services are provided as public monopolies. There is often little competition or incentive for innovation.


Cost-based pricing. Consumer prices reflect marginal costs. There should be no significant external costs unless specifically justified.


Automobiles use is underpriced: most costs are either fixed or external. Lower-density, automobile dependent land use patterns are also underpriced.


Economic neutrality. Public policies (laws, taxes, subsidies, and investment policies) must not favor one economic activity over others, unless specifically justified.


Many public policies favor automobile use including dedicated road funding, automobile-oriented planning and investment practices, and zoning laws that require generous parking.

A fair and efficient market must reflect the principles in the left column. Transportation and land use markets often violate these principles, as described in the right column.



Although individual distortions may seem modest and justified (for example, businesses consider it reasonable to provide unpriced employee and customer parking, and public officials consider it reasonable to favor roadway investments), their impacts are cumulative and synergistic. For example, underpricing roads not only cause excessive congestion and road wear, it also increases parking costs, crashes and pollution damages, while underpricing parking not only causes inefficient use of parking facilities, it also increases congestion, crashes and pollution costs.


This increased vehicle ownership and use increases the portion of regional wealth devoted to transportation (including vehicles, fuel and roadway facilities), and increases costs of congestion, accidents, pollution, sprawl, and costs to provide basic mobility for non-drivers. These additional costs are significant in magnitude and tend to reduce economic productivity and development. Hook (1994) estimates that during the 1960’s and 70’s, Japan devoted only 10% of GDP to transport compared with 18% in the U.S., and these savings were approximately equal to the higher rate of investment in Japan, a significant factor in Japan’s higher rate of economic growth during that period.


An international study found that per capita vehicle ownership peaks at about $21,000 annual income (1997 U.S. dollars) and then declines due to increased congestion, loss of novelty, and public policy responses (Talukadar 1997). A major World Bank study of transport and economic development patterns in various cities indicates that excessive automobile use tends to reduce regional economic development (Kenworthy, et al. 1997). This research indicates that beyond an optimal level (about 7,500 kilometers of per capita annual motor vehicle travel overall, although this varies depending on geographic and economic factors), the economic costs of increased vehicle travel outweigh the marginal benefits. The researchers conclude that, “there are no obvious gains in economic efficiency from developing car dependence in cities,” and, “There are on the other hand significant losses in external costs due to car dependence.” Regions with multi-modal transport systems appear to be most economically productive.


The relationship between wealth and vehicle travel is highly variable and depends on public policies. Although per capita vehicle ownership and use tend to grow as incomes increase from poverty to medium levels, growth rates decline and eventually level off. Wealthy households’ vehicle travel rates depend on public policies such as fuel prices, road and parking supply, the quality of alternative modes, and land use policies. Many wealthy regions have relatively low levels of automobile ownership and use, while some poor regions are relatively automobile dependent (Transport Statistics).


Transportation costs vary from one industry to another. They represent a significant portion of total costs in some resource-based industries, so modest transport cost changes can have major profitability impacts, but represent a much smaller portion of costs in other industries, and this portion is declining, as indicated in Table 4.


Table 4            Transport Inputs Relative To Output By Industry (BTS, 1999)















1992 Relative to outputs











1996 Relative to outputs











1992-1996 change











Transport as a portion of output varies significantly from one industry to another, and is declining for the economy overall.



Evaluating Transportation Demand Management Impacts

Transportation Demand Management includes various strategies that increase transport system efficiency, including improvements to alternative modes (walking, cycling, ridesharing, public transit, carsharing, telework), incentives to reduce automobile ownership and use (road and parking pricing, fuel taxes, encouragement campaigns), and more accessible land use (smart growth).


TDM can help achieve various economic development objectives as summarized in the table below. Not every TDM strategy provides all of these economic benefits, but most provide some, and their effects are additive. For example, shifts from driving to alternative modes can increase local business productivity by reducing congestion and parking costs, and increase demand for local products by reducing consumer expenditures on fuel, which leaves more dollars circulating in the local economy.


Table 5                        TDM Economic Development Impacts



TDM Impacts

Economic productivity

Reducing transport costs to producers increases economic development.

TDM can increase productivity by reducing congestion, road and parking facility costs, accident damages and other business costs.

Direct project expenditures

Transport infrastructure projects can generate short-term jobs and business activity.

Some TDM projects (pathway, roadway and transit improvements) contribute local jobs and business activities.

Indirect, future expenditures

Vehicles and fuel expenditures provide relatively little employment and economic activity, particularly if imported from other regions.

TDM can reduce vehicle and fuel expenditures, reducing import costs.

Transport industries

Vehicle production and servicing, fuel production, and shipping series, support economic activity in their communities.

Some TDM strategies support some transport industries, include specialized vehicle production and management services.

Economic opportunity

If inadequate access constrains education and employment, improving mobility and access can increase economic opportunity and development.

Some TDM strategies improve access to education and employment by disadvantaged people.

Location decisions

Improving access to areas with valuable resources stimulates economic development there.

TDM tends to support smart growth and urban redevelopment.


Reduced consumer costs are equivalent to an increase in income, particularly for lower-income households.

Many TDM strategies increase affordability by improving transportation and pricing options.

This table summarizes how TDM impacts various types of transportation economic impacts.



Market reforms that correct these distortions are generally considered TDM strategies, as indicated in Table 6. By improving transport system efficiency, these TDM strategies support economic development and avoid conflicts between economic, social and environmental objectives. These strategies can be considered Win-Win solutions that help achieve true Sustainability.


Table 6                        TDM and Market Principles (Market Principles)

Better Consumer Options

More Efficient Pricing

More Neutral Planning



Guaranteed Ride Home

Location Efficient Development

Nonmotorized Improvements



Transit Improvements

Taxi Service

Universal Design

Parking Cash Out

Congestion/Road Pricing

Distance-Based Fees

Fuel Tax Increases

Carbon Taxes

Parking Management

Parking Pricing

Smart Growth

Transportation Market Reforms

Transportation Market Reforms

Regulatory Reform

Institutional Reforms

Least Cost Planning

Access Management

TDM Programs

Transportation Management Associations (TMA)

This table shows how various TDM strategies support market principles.



Although some TDM strategies require subsidies, these are often justified on equity grounds (such as public transit subsidies to provide Basic Mobility for non-drivers), or on second-best grounds to offset existing automobile subsidies (such as public transit subsidies to reduce congestion and parking costs where roads and parking are underpriced). These factors should be considered when Evaluating their economic impacts. For example, if public transit service is subsidied for basic mobility sake, there may be very little incremental cost to improve the service to attract more trips out of automobiles and achieve addition savings and economic benefits.


People sometimes assume that vehicle travel reduction strategies must harm consumers. This is not necessarily true, particularly for strategies that use positive incentives, such as improved options or financial rewards for reduced driving such as Parking Cash Out and Pay-As-You-Drive Insurance. TDM strategies that use negative incentives, such as increased Fuel Taxes, Road Pricing and Parking Pricing, can benefit consumers if the revenues are returned as reduced taxes, lower retail prices or increased employee benefits (Criticism of TDM).



Evaluating Transportation Expenditures

Although the U.S. produces some motor vehicles and fuel, vehicle and fuel expenditures provide relatively little regional economic activity because they are capital intensive and mostly imported from other regions (Goldstein, 2007). Even locally assembled vehicles are built from components largely imported from other regions, so only a minor portion of vehicle expenditures stay within a particular region. Similarly, vehicle fuel production and distribution provide minimal jobs and are increasingly imported from other countries. The marginal unit of U.S. fuel supply is imported, so each additional gallon of consumption increases domestic imports.


Vehicle industries produce economic development if their products are exported, there is no apparent economic development benefit from policies that increase per capita vehicle expenditures, for example, subsidies to the purchase of new vehicles or policies that increase automobile travel. There is no evidence that policies which stimulate domestic vehicle and fuel expenditures stimulate economic development overall. A consumer dollar spent on automobiles means one less dollar for housing, food, entertainment, education, or investment.


Motor vehicle consumption may have provided economies of scale during the early periods of vehicle production and road development (McShane, 1994, p. 105). At that time you benefited if your neighbors purchased more automobiles and drove them more miles because this reduced the unit costs of vehicle and paved roads. But once the automobile industry developed and a basic road network was built these external benefits no longer exist (Litman and Laube, 1999). The automobile industry is now mature and overcapitalized. Although automobile manufacturing was once a leading industry in technical innovation, wages and profits, this is no longer true. Many other industries now pay comparable wages, and better profits, and manufacturers demand government subsidies (tax rebates, infrastructure expenditures and training programs) that absorb much of the economic development benefits.


Public policy and planning decisions, such as facility investments, taxes and fees, and land use policies, significantly influence consumer transport activity and expenditures. For example, within the U.S., average per capita vehicle travel ranges from less than 15 daily miles in multi-modal cities such as New York and Davis, California, to more than 30 daily miles in automobile-dependent cities such as Houston, Texas and Asheville, North Carolina (Highway Statistics). International comparisons show even greater variations; residents of high-income European and Asian cities have vehicle travel rates less than half of those in comparable North American cities (Transportation Statistics). These differences in travel patterns have significant impacts on transportation expenditures.


Residents of cities with well-established rail transit systems spend an average of $2,808 on personal vehicles and transit, compared with $3,332 spent per capita in comparable size cities without rail systems, providing about $500 annually savings per capita, not include additional savings from reduced parking costs and tax burdens (Litman, 2004a). Investments in alternative modes and smart growth land use policies have reduced Portland, Oregon area per capita vehicle travel about 20% compared with other cities, providing consumer savings and economic development benefits (Cortright, 2007). Even greater changes may be economically justified. According to one study, rational planning practices, transportation pricing and land use policies would reduce motor vehicle travel 30-50% compared with current practices, providing significant economic savings and development benefits (Litman, 2009).


A typical household spends 15-20% of net income directly on transportation goods and services, and even more if indirect costs such as residential parking are included. Table 7 shows average transportation expenditures by income class in 2005. At that time, when gasoline prices aveaged $2.34 per gallon, households spent about $2,000 annually on motor vehicle fuel.


Table 7            Transportation Expenditures By Income, 2005 (BLS, 2005)

Transport Expenditures







Vehicle purchase and rentals







Vehicle finance charges







Gasoline and motor oil







Maintenance and repairs







Vehicle insurance







Other vehicle expenses







Total vehicle expenses







Public transport (transit, rail, air)














Average households spent about $2,000 annually on motor vehicle fuel and about $10,000 in total on motor vehicle transportation. Fuel expenditures have probably increased substantially since.



Table indicates the distribution of fuel expenditures. With modern fuel retailing systems only a tiny portion of fuel expenditures remain in local economies, as fuel station wages and rents. Dollars spent on taxes, distribution and marketing, and refining tend to leave the region but stay within the national economy. The largest share consists of crude, which is largely imported to the U.S. and to most other countries. As a result, fuel expenditure provide little regional employment or business activity.


Table 8            Average Household Gasoline Costs (EIA, 2008)



Total Annual





All domestic

Distribution and marketing



Mostly domestic




Mostly domestic

Crude oil



Mostly imported





The majority of dollars spent on vehicle fuel leave both the regional and national economies. As a result, fuel expenditures provide less economic development benefit than most consumer goods.



A US Department of Energy study (USDOT, 2005) estimated that excessive dependence on imported petroleum cost the U.S. economy $150-$250 billion in 2005, at a time when oil averaged $35-$45/bbl. These costs are likely to increase substantially in the future as domestic production declines and international oil prices rise.


A 1999 Texas case study used national input-output table data to calculate the regional economic activity and employment generated by expenditures on automobile use, transit use, and general consumer expenditures (Miller, Robison & Lahr, 1999). It found that each 1% of regional travel (53 million vehicle-miles) shifted from automobile to public transit increases regional income about $2.9 million (5¢ per mile shifted), resulting in 226 additional regional jobs. The impacts are summarized in Table 9.


Table 9            Regional Economic Impacts Of $1 Million Expenditure (Miller, Robison and Lahr, 1999)

Expenditure Category

Regional Income

Regional Jobs

Automobile Expenditures



Non-automotive Consumer Expenditures



Transit Expenditures



This table shows economic impacts of consumer expenditures in Texas.



The British Columbia input-output table shows similar effects, as indicated in Table 10. Highway investments create only about one job per $1.5 million in government expenditures, compared with $5,000 to $30,000 for other government programs (Dittmar 1999). A comprehensive economic evaluation model found similar results at an international scale (ASTRA 2000). This indicates that policies which reduce consumer expenditures on motor vehicles and fuel tend to increase employment and business activity, particularly in regions that import petroleum.


Table 10          Jobs Created in British Columbia by Transportation Expenditures (B.C. Input/Output Table, British Columbia Treasury Board,1996)

       $1 Million Expenditure      

Full Time Jobs Created



General Automobile Expenses


Public Transit


This table shows economic impacts of transportation expenditures in British Columbia.



Policies that encourage motor vehicle consumption benefits some industries at the expense of others, as summarized in Table 11. Only if Better Off firms provide more economic development than those Worse Off might policies that encourage automobile travel support economic development.


Table 11          Business Impacts of Automobile Dependency

Better Off

Worse Off

Motor vehicle production, sales and services.

Bulk commodity shipping.

Distant suppliers.

Isolated businesses.

Alternative mode production, sales and services.

High-value goods.

Local and domestic suppliers

Communications and information industries.

Automobile dependency benefits some businesses and harms others.



This suggests that each million dollars shifted from purchasing fuel to general consumer goods (that is, each million dollars of fuel conserved) typically creates 10-12 additional domestic jobs, and shifting a million dollars from vehicle expenditures to general consumer expenditures creates 5-7 additional domestic jobs.



Evaluating Transportation Facility Investments

Investments on transportation facilities (bridges, highways, rail lines, airports, etc.) are often proposed as economic development strategies and are a traditional way for governments to dispense economic benefits to particular areas and groups. These are sometimes justified, but their economic benefits are frequently exaggerated (Hodge, Weisbrod and Hart, 2003; Utt, 2004). Other types of investments, such as education and medical care, tend to provide more regional jobs per dollar invested, and they only provide long-term economic development benefits to the degree that they reduce production costs. For example, if an area has poor access and undeveloped resources, building a railroad or roadway there may significantly increase economic development. However, if there is little demand for the area’s resources, or the area lacks other needed inputs (such as utilities or skilled labor), transportation improvements may do little to stimulate economic development.


Roadway transportation tends to experience declining marginal benefits. Building the first highway to a region generally supports economic development but once an area has a basic paved road system, additional roadway capacity provides relatively small economic development benefits (SACTRA, 1999; Kopp, 2006). Driving is relatively convenient and inexpensive to most destinations, except under urban-peak conditions. The major transport problems facing society consist of urban-peak congestion, motor vehicle crash risk and pollution, and inadequate mobility for non-drivers, all of which tend to be exacerbated by increased motor vehicle travel and reduced by TDM policies that encourage more efficient transportation.


Highway, shipping, trucking and automobile industry representatives often argue that transportation makes a unique contribution to economic development (Jacoby 1999), but this indicates little about the economic development impacts of a particular facility investment. That transportation is essential to economic activity does not mean that more transportation is necessarily better, roadway projects are optimal investments, or that such investments should be funded by taxes rather than user fees. Although some industrial trends, such as increased use of just-in-time deliveries, increase the importance of road capacity in production, other trends, such as telecommunications that substitute for physical travel, reduce its importance. There is no evidence that given suitable economic incentives, businesses couldn’t develop cost effective ways to reduce their dependency on road transport and continue to be productive


After analyzing the impacts of Washington State highway investments on local economic activity, Peterson and Jessup (2007) concludes “some transportation infrastructure investments have some effect on some economic indicators in some locations”.  Highway improvements support economic development if inadequate roads are a constraint to economic activity, and new business activity can be attracted to an area. For example, Weiss (1999) and Horst and Moore (2003) show that rural areas with good highway access experienced more employment growth, poverty alleviation and industrial diversity than areas that lack such access, but this does not prove that every highway project provides economic development benefits or that highways are the most cost effective investment. Current highway improvement economic development benefits are largely economic transfers, economic activity shifted from one location to another without overall gain (Baird, 2005; Boarnet and Haughwout, 2000; CBP, 2002; Chalermpong, 2004).


There is considerable evidence that the incremental economic benefit of additional roadway capacity is declining in developed countries (Helling, 1997; Goodwin and Persson, 2001; Shirley and Winston, 2004). Although highways showed high annual return on investment during the 1960s (0.54), this declined significantly by 1991 (0.09), and is likely to continue to decline since the most cost effective projects have been implemented (CBO, 1998). Table 12 shows how highway investments showed high annual economic returns during the 1950s and 60s, far higher than returns on private capital, but the rates of return declined to below that of private capital investments by the 1980s, and these trends are likely to continue, since the most cost-effective investments have already been made.


Table 12          Annual Rate of Return (Nadiri and Mamuneas, 1996)


Highway Capital

Private Capital

Total 1950-1989

















Shirley and Winston (2004) studied how infrastructure investment, both within each plant’s state and across state lines, affected inventory and logistics costs at tens of thousands of industrial facilities, holding constant other influences like interest rates and changing inventory practices. They found that infrastructure spending reduced costs and increased productivity, but the rate of return declined significantly over time, from more than 15% annual return in the 1970’s to less than 5% in the 1980’s and 1990’s. “By the late 1970’s, the Interstate highway system was substantially completed,” the economists write. “During the past two decades, the primary objective of highway spending has shifted from expanding the nation's capital stock to maintaining it. Undoubtedly, the improvement in costs and service from such investments and the concomitant reduction in plants’ inventories cannot compare with those produced by the construction of thousands of miles of new roads.”


Similarly, a study (Smith, et al, 2002) found that building new highways had a major effect on land development patterns in the Twin Cities region during the 1970s, but once a basic highway system was built, adding more roadway capacity provides less additional residential, commercial or industrial development in an area.


Other transportation improvements, such as public transit investments and TDM programs that result in more efficient use of existing roadway capacity, can provide greater economic benefits than increased roadway capacity (Boarnet 1999; Cambridge Systematics 1999). Regions that invest heavily in road capacity expansion fared little better in reducing traffic congestion than those that invested much less (STPP, 1998). Thousands of dollars would need to be spent annually per household to increase roadway capacity enough to simply maintain current congestion levels. TDM strategies that reduce congestion and improve access at lower cost to society can increase economic development.


An expert review of economic impact research (SACTRA, 1999) finds:


·         “The available evidence does not support arguments that new transport investment in general has a major impact on economic growth in a country with an already well-developed infrastructure. At the regional and local level, in particular, the issue of impact is made more complex by the possibility that changes in quality of access can either benefit or harm the area in question. We do not accept the results of macroeconomic studies which purport to identify very large returns from infrastructure investment. We are at present unpersuaded by the size of the impact of transport on jobs claimed by a number of European studies.”


·         Transportation investments may have broad economic impacts, but these can be either positive or negative. For example, a road improvement can lead to residents traveling elsewhere for shopping and services, reducing business in that community. 


·         Traffic reduction strategies can also achieve economic benefits by using existing capacity more efficiently. Travel demand management (including road pricing or improvements in alternative travel modes) should be considered as alternatives to capacity expansion.



O’Fallon (2003) provides the following guidance for maximizing productivity gains from  infrastructure investments:









Some studies suggest that highway investments which stimulate urban sprawl are economically harmful (Land Use Impacts). Nelson and Moody (2000) evaluate the association between beltways and retail/service activity among 44 metropolitan areas in the United States. After controlling for other factors, statistical analysis indicates that metropolitan areas with one or more belt-ways fared less well in sales per capita than metropolitan areas with no beltways and metropolitan areas with one beltway fared better than those with two or more. The reason is that beltways deconcentrate metropolitan populations to levels that prevent the creation of trade areas sufficient to support retail and service firms at the margins.


Highway projects are often proposed as ways to stimulate employment and business activity, but these direct impacts are smaller than public expenditures on more labor-intensive services, such as education and health care, and these impacts are decling. Table 13 indicates the direct employment and business activity typically created by a million dollars spend on highway projects. This indicates that the economic impacts have declined over the last decade, probably due to improved labor productivity and increased reliance on imported resources such as fuel, aggregate and steel. These are upper-bound estimates because they assume that the resources (worker, equipment and material production) would otherwise be unused; in many cases highway construction competes for resources with other projects so these impacts represent shifts rather than net economic development gains.


Table 13          Million Dollar Highway Expenditure Impacts, 2007 dollars (FHWA, 2008)





Construction Oriented Employment Income




Construction Oriented Employment Person-Years




Supporting Industries Employment Income




Supporting Industries Employment Person-years




Induced Employment Income




Induced Employment Person-years




Total Employment Income




Total Person-years




This table indicates the total estimated economic impacts from each million dollar highway project expenditures. These impacts are declining due to improved labor productivity and increased reliance on imported resources.



The FHWA offers the following cautions in the use of these values:



Transportation funding practices often make highway expenditures appear economically attractive from an individual jurisdiction’s perspective. Federal, state or provincial grants appear to be “free” money that provide local jobs and business stimulation during the construction period, and are therefore attractive regardless of their long-term transportation impacts. This tends to distort investments toward highways and away from other solutions that may be more cost effective overall.


Some TDM strategies can increase transportation productivity, which supports economic development. For example:


·         Comprehensive Transport Planning and Least Cost Planning can result in more efficient transportation planning and investment decisions.


·         HOV Priority, Road Pricing, Access Management and most other TDM strategies can result in more efficient use of roadway capacity, reducing roadway costs per unit of travel.


·         Land use management strategies such as Smart Growth and Location Efficient Development can reduce the amount of road travel required for a given level of access.


·         Public Transit investments provide more and higher paying jobs than many other types of public expenditures (Pollin and Garrett-Peltier, 2007). High quality transit service provides efficiencies and cost savings to consumers and businesses, which increases productivity, expenditures on local goods, local employment and business activity (Litman, 2004a; Graham, 2007).


·         A number of studies find significant Property Value Increases near transit stations and at Transit Oriented Development. These benefits can be substantial, in some situations repaying a significant portion of transit service costs (Smith and Gihring, 2006; Hass-Klau, Crampton and Benjari, 2004).


·         Pedestrian Improvements and Traffic Calming can increase property values and stimulate tourist activity in a community (LGC, 2001).


·         Smart Growth and New Urbanism can increase property values (Eppli and Tu, 2000).



Highway Bypass Economic Impacts

There are often debates over the overall, long-term economic impacts of urban bypasses, highways designed to provide an alternative route around an urban area to reduce traffic congestion. Several studies, summarized below, suggest that their economic impacts vary depending on specific circumstances, and transportation and land use management practices.


Susan Handy, Scott Kubly and Michael Oden, Economic Impacts of Highway Relief Routes on Small Communities, University of Texas, Austin (, 2002.

This report summarizes ten case studies of the effects of highway bypasses on small town land use and economic development. Finds moderate to large impacts, particularly declines of downtown businesses and additional “big box” development at the urban fringe, often by national retail chains.


Glenn Leong and Glen Weisbrod, Summary of Highway Bypass Studies, Economic Development Research Group (, July 1999.

This paper summarizes literature on the economic development impacts of highway bypasses. It concludes that these impacts depend on circumstances, and tend to be modest overall in terms of total regional economic activity, but they can cause reductions in downtown business activity.


Todd Litman, “Generated Traffic; Implications for Transport Planning,” ITE Journal, Vol. 71, No. 4, Institute of Transportation Engineers (, April, 2001, pp. 38-47; also available at Victoria Transport Policy Institute website ( 

This paper defines generated and induced travel, and the resulting impacts on travel patterns, land use, and economic productivity.


Sivaramakrishnan Srinivasan and Kara Miria Kockelman, “The Impacts of Bypasses on Small- and Medium-Sized Communities: An Economic Analysis,” Journal of Transportation and Statistics, Vol. 5, No. 1, Bureau of Transportation Statistics (, 2002, pp. 57-70.

This paper evaluates the impacts of urban bypass highways on city business activity. It finds that economic activity tends to decline, particularly for vehicle fuel sales, although the effects vary depending on geographic factors.


WDOT, The Economic Impacts of Bypasses on Communities, Wisconsin Department of Transportation (, 1998. 

This study evaluated the traffic and economic impacts of 17 highway bypasses in Wisconsin. It found that generally there was little or no adverse impact on overall local economic activity, although individual businesses are sometime harmed, particularly in smaller communities. The report also examined the traffic volumes before and after the bypass, and found that there was usually a net increase in total traffic volume (bypass + old route), even in communities with relatively little traffic congestion.



Evaluating Automobile Industry Subsidies

The automobile industry is a major economic sector, so many people assume that vehicle ownership and use stimulate economic development and that domestic automobile industry failures (such as bankruptcy of GM, Ford or Chrysler) would be “catastrophic” to the national economy. This is often used to justify direct or indirect automobile industry subsidies, including government loans, special infrastructure and tax exemptions, and transportation policies that encourage high levels of automobile ownership and use, such as low fuel taxes, unpriced road and parking, and minimal investments in alternative modes. However, such policies benefit some economic sectors but burden others. A dollar spent to subsidize the automobile industry means less money available for other investments and expenditures.


At one time, motor vehicle industries were leaders in innovation, wages and profits, and so tended to provide superior economic development benefits than other industries, but that is not necessarily true now. Other industries are more innovative. International competition have reduced wages and profits. Motor vehicle industries extract large subsidies from jurisdictions in the form of infrastructure investments, tax reductions, labor development, and other support.


The key question is whether automobile industry subsidies provide greater economic returns than alternative public investments, for example, in education, infrastructure and research. In 2007, GM, Ford and Chrysler together employed about 240,00 U.S. employees, and including component subcontractors the US automobile industry employs about 730,000 workers, or about 0.5% of the total national workforce (CAR, 2008). Even with federal support, 10-30% of these jobs would be eliminated, and if these companies went bankrupt many of these workers could shift to other productive jobs or retire early. Since other manufactures would continue to produce and sell vehicles in the U.S., most suppliers, distributors and service companies would continue to operate, although some would decline in size or profitability. For example, the $34 billion loan requested by U.S. automobile manufactures in December 2008 represents about $200,000 per domestic automobile company job retained, in addition to the many other direct and indirect subsidies provided to the automobile industry by local, state and federal governments.


Of special concern is that U.S. vehicle manufactures have made their greatest profits on the sale of fuel inefficient vehicles, such as SUVs, light trucks and vans. As a result, citizens and public officials may favor transport policies that stimulate automobile ownership and use to maximize short-term automobile industry profitability. The result could be economically harmful overall since transport system efficiency affects a far larger number of jobs than those provided by domestic automobile manufactures. Policies and subsidies that perpetuate inefficient vehicle sales and automobile-dependent transport systems destroy far more jobs than they create. Of course, U.S. manufactures can produce fuel efficient vehicles, but doing so goes against well-established habits.


Consider three policy scenarios. The first is intended to support the domestic vehicle industry profits by maintaining the relatively modest target for 2020 of 35 mile-per-gallon (MPG) average new vehicle fuel economy, which would increase 2020 fleet (assumed to total 300,000 vehicles) fuel economy to 28 MPG. This could be accomplished with technical improvements that allow domestic manufactures to continue selling large numbers of SUVs, light trucks and performance cars. The second scenario would raise the 2020 target to 55 MPG, increasing average fleet efficiency to 38 MPG. This scenario would probably require reducing average vehicle size so the U.S. automobile fleet would become similar to those in Europe and Asia. The third option includes this increase in fuel economy plus mobility management policies such as road and parking pricing and increased investments in alternative modes to reduce per capita vehicle mileage 20% by 2020. The results are summarized in the table below, assuming that each $1 million dollars in transportation fuel conservation provides 10 additional domestic jobs by keep more of those dollars circulating in the national economy.


Table 14          Economic Impacts of Three Vehicle Fleet Efficiency Scenarios

Scenario 1

Scenario 2

Scenario 3

Auto-industry profit maximzing

Increased vehicle fuel economy

Increased transport system efficiency

Fleet average fuel economy




Average annual mileage




Annual gallons per vehicle




Consumer costs per vehicle (retail)




Petroleum dollars per vehicle (wholesale)




Total dollars (millions)




Domestic jobs created (10 jobs per $1 million petroleum cost savings)




This analysis indicates that increased transport system fuel efficiency would provide significantly domestic employment growth, far larger than the number of jobs created by subsidizing domestic automobile producers.



This analysis indicates that a increasing transportation system energy efficiency provides far more jobs (1.7 million) than those created by supporting domestic vehicle manufactures (about 0.2 million).



Transportation Pricing Reforms

Transportation Demand Management includes various market reforms that affect travel behavior, transportation expenditures and transportation system efficiency. The economic development impacts of these reforms are discussed below.


Fuel And Carbon Taxes

Increases in Fuel Taxes and Carbon Taxes are often proposed as ways to finance transportation improvements, encourage Energy Conservation and Emission Reductions, and internalize External Costs. Oil price increases tend to reduce economic development for energy consumers by transferring wealth overseas but increasing energy taxes retain wealth in the domestic economy a combination of increased tax revenues (used either to reduce other taxes or to finance additional public services) and by encouraging consumers to conserve fuel (Barker and Rubin 2007). If low fuel taxes were really beneficial, and high fuel prices were really economically harmful, countries like Saudi Arabia and Venezuela would be economic powerhouses, while high fuel price countries like Britain, Germany and Japan would be economically disadvantaged. This is not the case because higher energy prices motivate businesses to become more efficient, increasing innovation and overall productivity, while low energy prices encourage wasteful use of resources, which is harmful overall to the economy.


The petroleum industry argues that energy tax increases would be economically harmful (Wiese and Tierney, 1996; API, 2000), but their analyses generally ignore the economic benefits that can result from tax shifting (reductions in more economically harmful taxes) and more efficient resource use (they assume that higher fuel prices would not stimulate energy efficiency). Studies that incorporate these effects indicate that revenue neutral tax shifts could increase economic development (Norland and Ninassi, 1998; Walz, et al, 1999; Hoerner and Mutl, 2000). A congressional study finds, “...if a gasoline tax were coupled with an equal-revenue increase in investment tax credits, short-run macroeconomic losses resulting from motor fuel tax increases could be more than offset by the short-run macroeconomic gains” (OTA, 1994).


Shapiro, Pham and Malik (2008) used the U.S. Department of Energy’s National Energy Modeling System (NEMS) to evaluate the economic impacts of a Carbon Tax that begins at $14 per ton of CO2 equivalent and increases to $50 per ton, with 90% of the revenues returned to households and businesses in tax relief and the remaining 10% of revenues used to support energy and climate-related research and development, and new technology deployment. They conclude that the U.S. can reduce climate change emissions by 30% and would only reduce 2010-to-2030 GDP growth from 33.6% to 33.4%.


Congestion Reductions

Congestion increases travel time and fuel consumption costs. A number of studies have quantified congestion costs and suggested that congestion reduction strategies can provide significant economic development benefits.


The Texas Transportation Institute’s Urban Mobility Study (TTI, 2007) estimates that congestion costs $78 billion in 2005 (2005 dollars) in the form of 4.2 billion lost hours and 2.9 billion gallons of wasted fuel. A study for the Chicago Metropolitan Planning Council estimates that regional congestion costs total $7.3 billion annually, ranging from $824 to $3,014 per automobile commuter (HDR, 2008). The analysis applied a value of $14.75 per hour of delay to automobile users and $66.83 per hour of truck delay for driver time and cargo. It estimated the reduction in regional employment caused by congestion by assuming half of the additional commuting costs are passed on to employers, and the elasticity of labor demand at the metro­politan area level, with a sensitivity of labor demand to changes in labor cost of 1.35, resulting in an estimated loss of 87,000 jobs.


However, the actual economic benefits depend on the type of congestion reduction strategy implemented. Expanding highways tends to provide little or negative economic development benefits because the effects are temporary (the additional roadway capacity is usually filled in a few years by Generated Traffic), much of the benefit is captured by consumers rather than producers (business travel is no better off and most generated traffic consists of increased personal travel), and the increased travel increases economic costs such as energy consumption and sprawl. On the other hand, TDM congestion reduction strategies, such as Congestion Pricing and HOV Priority tend to give higher value trip and more efficient modes priority over lower value trips, increasing overall economic efficiency which supports economic development.



Smart Growth Land Use Policies

Smart Growth (also called New Community Design) is a general term for land use practices that create more resource efficient and Livable communities, with more Accessible land use patterns that reduce the amount of mobility required reach goods and services. Smart Growth Policy Reforms are market-based strategies that help achieve more efficient and accessible land use patterns by reducing existing distortions that favor sprawl. Smart Growth can help achieve various strategic Land Use Objectives and can provide a number of economic benefits, including:



As a result, Smart Growth can significantly increase economic productivity, development, employment and net income (Muro and Puentes, 2004; IEDC, 2006). Specific TDM strategies often have measurable economic benefits. For example, in a survey of business owners in an urban retail district, Drennen (2003) found that 65% consider a local Traffic Calming program to provide overall economic benefits, compared with 4% that consider it overall negative, and 65% support further traffic calming projects in their area. These benefits can be particularly important in tourist-oriented business districts, and as part of community revitalization.


Table 15 shows the results of a study that ranked cities according to “drivability.” The most drivable cities are generally not considered very attractive places to live, work or visit (excepting those that are along the coast, which have shoreline resorts), and their average incomes are far lower than cities considered least drivable (Litman, 2003). Mattera and LeRoy (2003) found that Smart Growth tends to increase construction employment.


Table 15                      Most and Least Drivable Cities (MSN, 2003)

Most Drivable Cities



Least Drivable Cities


1. Corpus Christi, TX



1. Los Angeles, CA


2. Brownsville, TX



2. San Francisco, CA


3. Beaumont-Port Arthur, TX



3. Chicago, IL


4. Pensacola, FL



4. Denver, CO


5. Fort Myers-Cape Coral, FL



5. Boston, MA


6. Oklahoma City, OK



6. Oakland, CA


7. Birmingham, AL



7. Detroit, MI


8. El Paso, TX



8. New York, NY


9. Memphis, TN



9. Seattle-Everett, WA


10. Tulsa, OK



10. Washington, D.C.







This shows US cities rated most and least drivable based on road surface quality, traffic flow, gas prices and climate. The most drivable cities have average incomes far lower than the least drivable cities. (AAPCI = Average Annual Per Capita Income, from .)



McCann (2000) finds that per-household transportation expenditures vary significantly from one metropolitan region to another, due to land use and transportation factors. She found that households in more automobile-dependent communities devote more than 20% of household expenditures to surface transportation (more than $8,500 annually), while those in Smart Growth communities spend less than 17% (less than $5,500 annually), representing resource cost savings of hundreds of dollars a year. In an international comparison, Newman and Kenworthy (1999, pp. 111-117) found similar results. These expenditure shifts tend to support regional economic development, as described above. Similarly, research by Civic Economics (2002) indicates that smaller, locally-owned and managed stores tend to increase employment and economic activity per expenditure dollar.


Accessibility Versus Mobility

There is generally a positive relationship between development density or traffic congestion and measures of economic productivity (such as land rents, business revenue per acre or average wages per capita): economic productivity tends to be greatest in the most congested areas. This does not mean that congestion causes economic productivity, but it does indicate that congestion is not a major constraint to productivity. Cities and other major activity centers tend to have a poor vehicle mobility (due to Congestion), but are economically successful due to excellent Accessibility (activities are clustered together and there are many travel options). This indicates that in the game of economic competitiveness, accessibility trumps mobility.


This suggests that traffic congestion itself is not necessarily a major problem provided that land use patterns minimize the amount of driving needed to reach common activities and destinations, and that travelers have good Transport Options to choose from. Smart Growth strategies that result in more accessible land use may be the best way to improve transportation and increase economic productivity, while a congestion reduction strategy may provide little or no economic benefit overall if it stimulates sprawled land use that reduces overall accessibility in a community.



In a study by Professor Kathleen Wolf (2002), consumers were shown photos of retail streets with and without trees to inner-city residents across the US and asked how much they would be willing to pay for a variety of items at each location. Participants indicated that they were willing to pay nearly 12% more to shop on treed streets than on treeless ones. They perceived shops on tree-lined streets as better maintained, having a more pleasant atmosphere, and as likely having higher quality products. Participants also indicated that they were willing to travel farther to those shops (expanding the customer pool) and to pay more for parking.


The Location Paradox

Modern transportation systems allow economic activity to be mobile. For example, automobile transportation allows commuters to live anywhere in a region rather than near worksites, and modern logistics allow factories to locate around the world rather than near raw materials or customers.


However, this tends to increase rather than reduce the importance of location for many economic activities, which is called the location paradox (Porter, 2000). Because many economic activities are highly mobile, location-based factors can become more important in determining economic competitiveness and development. For example, if workers can locate anywhere within a region, neighborhoods with more attractive social and natural environments, better schools and public services will gain competitive advantage. Similarly, if most production activities are mobile, industries will tend to cluster in certain areas to maximize access to talent (industrial experts and specialized support services will tend to locate together). This explains, for example, why industries such as software development, motion picture production and high level finance have become more concentrated over time, despite the high degree of mobility of their products.


Many businesses are more productive if they locate near an industrial cluster, a major commercial center or a university, and they can pay employees less if they are located in an attractive community or in areas where travel costs are minimized. Creating the optimal balance between these factors is key to industrial competitive advantage. A modern, knowledge-based economy will tend to be more rather than less sensitive to transportation system efficiency and community livability. As a result, transportation Demand Management can make important contributions toward economic development.



Evaluating Social Welfare Impacts

As discussed earlier, a narrow definition of economic development only considers market impacts, such as business productivity, incomes and property values, while a broader definition also considers impacts on consumer and desirable social welfare outcomes, such as attainment of health, education and equity objectives, and increased human happiness. Special consideration is needed to evaluate how transportation policies and planning decisions affect these impacts.


Although increased mobility, such as shifts from walking or public transportation to driving provides direct benefits to the people who make the shift, the resulting increases in Automobile Dependency can impose a number of costs on individuals and society, including indirect financial costs (such as higher housing costs and tax burdens to finance residential parking and local roads), increased traffic crash risk and pollution exposure, degraded walking and cycling conditions, reduced public transit service quality, more dispersed land use patterns, reduced fitness and health, and increased consumer transportation costs to maintain a given level of economic opportunity and social status. More Comprehensive Analysis takes into account these additional economic and social costs which offset many of the direct economic benefits of increased automobile ownership and use. This type of analysis is needed to evaluate the full social welfare impacts of transportation policies and programs, and are particularly important for evaluating TDM strategies.


Described differently, conventional economic analysis which only considers the quantity of economic activity tends to imply that any increase in vehicle travel is economically beneficial, even if this activity is overall inefficient and imposes indirect costs. More comprehensive economic analysis recognizes that some types of consumption provide more net benefits to society, and these factors should be considered in policy analysis and planning. This can help maximize net benefits to society and avoids Economic Traps that can cause people to increase their consumption of goods in ways that provide little or no net increase in overall social welfare.


“What We Work for Now”

New York Times (

Jerome M. Segal, September 3, 2001


 COLLEGE PARK , Md. -- Despite all our concerns with self-fulfillment, most Americans work to earn money, just as their forebears did 100 years ago. The relative costs of necessities have changed, and so has a fair definition of what is necessary. But even with all our economic growth, and even with some items much cheaper than they once were, families still spend about four-fifths of their budgets for core needs, just as their counterparts did a century ago. Perhaps there should be some national introspection about how much we have really gained.


Certainly, we have escaped the overwhelming tyranny of food. In 1901, the Bureau of Labor Statistics reported that in major industrial cities, the biggest expenditure item for families was food - half of spending in low-income families and a third in more affluent ones. In 1999, food took only 15 percent of household spending, and more than a third of that spending was for food prepared away from home. For food from their own kitchens, Americans now use up only 9 percent of their budgets. They can cover that with a little more than a month of work - probably the lowest level of work effort for food in human history. Even households in the lowest fifth of income use only 18 percent of total spending for food.


Something similar has happened with clothing. In 1901 it took 10 to 15 percent of the family budget, and now it takes only 5 percent. What, then, are Americans spending their money on? A common stereotype of the pampered consumer might suggest that large amounts are going for toys and luxuries, but I found while conducting studies for Redefining Progress, a public policy organization in Oakland, Calif., that this is a misconception. Electronic gadgets, for instance, have a small place in consumer spending - 2 percent in 2000. Entertainment takes less than 6 percent.


 The largest expenditure item now is housing. Bringing together renters and owners, shelter, including utilities, takes 27 percent of our spending, compared to a very similar 25 percent in 1901. Although our homes today are much more luxurious, safe neighborhoods with good public schools remain out of reach for many.


The big growth category is transportation. In the earliest studies of consumption, transportation wasn't even a separate category; it took only 1 or 2 percent of spending. But then came the automobile, and now we devote more than 20 percent of our spending to transportation. Just to cover that, the average American family works from New Year's Day to March 14. No society in history has worked so much just to be able to get around. A car may once have been a luxury, but as cities and suburbs have spread out, stores have disappeared from neighborhoods, and work and school have ceased to be within walking distance, nearly all Americans have become car-dependent. And with most women in the formal work force, many families have two automobiles - not really as a matter of choice, but as a basic need.


 Another work-related item virtually unknown a century ago is day care. Self-sufficiency budgets, calculated by many states to determine families' costs for basic needs, allocate 25 to 30 percent of a low-income household's spending for day care.


 Though education remains only a minor category of spending - 2 percent - this is just on average. For families with children in college – and college is now required for far more jobs than in the past - this expense can be staggering.


So in a century of growing incomes and changing lives, what has been gained? While the energies of Americans are expended to obtain different items than they were years ago, what remains constant is the emphasis on the basics. In 1901, 80 percent of spending went for food, housing and clothing. In 1999, 81 percent of spending went for food, housing, clothing, transportation and health care. A century of economic growth has certainly brought some genuine progress, but it is less clear-cut than we sometimes think.


Jerome M. Segal, a senior research scholar in public affairs at the University of Maryland, is the author of “Graceful Simplicity.”



Economically Harmful TDM

Transportation Demand Management generally supports economic development objectives, but inappropriate TDM implementation can be economically harmful. Specific risks are described below.


Inefficient Programs

A TDM program that has high overhead costs and minimal travel impacts may not be worthwhile. Examples include Commute Trip Reduction programs with high administrative costs that deliver few services, Transit and Shuttle services that attract few riders, and TDM Marketing that lacks substantial resources, promotes inferior services, or provides inaccurate information.


Insensitive Policies and Programs

TDM programs that are considered burdensome or insensitive to target participants may create resentment, for example, if marketing programs use shame to discourage driving, fail to respond to equity concerns, or are unresponsive to participants concerns or requests.


Inefficient Pricing

Pricing can be economically harmful if price changes are sudden and unpredictable, if Pricing Methods have high transaction costs, if there are large price differentials in adjacent jurisdictions, if price are significantly higher than costs, or if prices are applied unfairly.


Inefficient Planning

TDM Planning can be inefficient if it focuses on just one or two strategies, if it fails to provide a balance of transportation service improvements and incentives to reduce driving (for example, by increasing parking prices without providing adequate improvements for transit, ridesharing, nonmotorized transportation and telework), if it applies mobility services that are not appropriately matched to demographic and geographic conditions (such as bicycle promotion in areas unsuited to cycling).



Decoupling Economic Growth and Transport Activity

In order to achieve Sustainable Transportation objectives, some economists advocate that industries make a concerted effort to “decouple” economic growth from transportation activity, meaning that in the future, economic activity requires significantly less mobility, and economic development can occur without a proportional increase in transportation activity (Gilbert and Nadeau, 2001; ECMT, 2001; Tapio, 2005). This can be accomplished, some experts believe, by a combination of strategies that encourage more efficient personal and Freight transport (T&E, 2001), particularly Comprehensive Market Reforms and more Comprehensive Transportation Planning.


Decoupling Transport and Economic Growth (ECMT, 2001)


Is decoupling possible?

Decoupling is possible and necessary to achieve sustainable and economically efficient development.


What is the link between transport growth and economic development?

There is no economic law binding transport and economic development. Traffic growth can be harmful both to the economy and the environment

Transport demand derives from other economic activity. The object of a good transport system should improve access to goods and services without excessive or unnecessary mobility.

Reductions in transport intensity can be beneficial for the economy and the environment.

Only decoupling transport demand from economic development will deliver true long-term sustainability.


What is needed to achieve decoupling?

Decoupling transport growth and economic development requires comprehensive planning.

Transport is priced unfairly and too cheaply, creating inefficiencies in the economy. Pricing reforms to internalize transport’s costs are necessary to correct these inefficiencies.

Clear policy goals, environmental and health targets are needed for the transport sector.

Decision-makers cannot afford to wait to have all the answers before proceeding with decoupling.

Technology may deliver some benefits, however demand management and demand reduction are needed to achieve decoupling.

Improved benefit-cost analysis and consistent application of strategic environmental assessment are systematically needed when developing transport infrastructure projects.

All stakeholders must be involved in the process of decoupling transport growth from economic development.





Portland Oregon (

Cortright (2007) finds that as a result of innovative transportation and land use policies, Portland, Oregon area residents drive about 20% fewer annual miles and use alternative modes about twice as much in comparable cities, and as a result enjoy various benefits, including more regional economic development, consumer cost savings, reduced air pollution, better health and more livable urban neighborhoods.




TREDIS (Transportation Economic Development Impact System) is an interactive system of tools for transportation investment economic development impact evaluation and benefit-cost analysis. It can be applied to highway, bus rail, aviation, marine and multi-modal projects. It takes into account impacts on passenger travel time and travel cost, freight flow patterns, schedule reliability, logistics efficiencies, labor and delivery markets, congestion, and changes in ground access to intermodal transportation ports and terminals. It quantifies impacts on costs savings, productivity and creation of income, jobs and business growth. It then provides a broad set of benefit/cost measures based on travel efficiency, user benefit and economic development impact. Results are broken down by type of impact or benefit, by region of impact and by affected sector of the economy.



The Economics Of Place (

The book, The Economics of Place: The Value of Building Communities Around People, describes why and how cities and towns can support sustainable economic development by implementing policies that emphasize multi-modal accessibility and urban neighborhood quality. It argues that, as the economy becomes more global and knowledge-based, competitiveness relies on attracting talented people and the industries they support; in the old economy, people followed jobs, but in the new economy, jobs follow talented people. The table below contracts factors of success in the old and new economies.


Table 16          Shifts From The Old to New Economy (MML 2011)

Old Economy

New Economy

Attract businesses by minimizing their costs: access to inexpensive natural resources, low environmental standards, low taxes and industrial subsidies.

Attract talented entrepreneurs by creating livable communities: quality environmental and cultural amenities, affordable housing and transportation

Focus on a few large, generally resource-intensive base industries

Focus on economic diversity, including many mobile, knowledge-based, resource-efficient industries  

Low taxes, cheap utilities and expanded highways to provide access to cheap suburban land

High quality education, including good public schools, colleges and universities, and improved urban accessibility (good walking, cycling and public transit services)

Economic development often required sacrificing community livability and environmental quality

Economic development often requires protecting community livability and environmental quality

Industrial hunting: attract a few large new businesses

Economic gardening: help many, diverse and often small businesses grow

Economic development is coupled with increased motor vehicle travel, and so requires expanded roads and parking supply, and cheap fuel

Economic development is decoupled from motor vehicle travel, and requires policies that increase transport system efficiency and diversity

The new, more mobile and knowledge-based economy places more emphasis on community livability to attract talented entrepreneurs and the diverse industries they can create.



A chapter by John Norquist identifies specific public policy reforms needed to support the new economy. These include:



Transit Economic Returns (EDRG, 2007)

EDRG (2007) used quantitative analysis to estimate that the current Chicago region transit plan provides an estimated 21% annual return on investments, an enhanced plan provides a 34% return, and adopting Transit-Oriented Development, as proposed in the region’s official comprehensive plan, would increase the return to 61%. Failure to maintain the transit system will harm the region’s commuters and the economy, estimated at over $2 billion annually.



Best Practices

O’Fallon (2003) provides general guidance for maximizing economic development benefits from infrastructure investments. The following are recommendations for insuring that TDM policies and programs support economic development.


·         Apply Comprehensive Transportation Planning and Least Cost Planning to create more efficient and neutral planning and investment practices. Use comprehensive transportation Planning and Evaluation that considers all impacts and integrates short-term decisions with long-range objectives.


·         Target TDM improvements to travel that most affects economic activity, including Freight Transport Management, Commute Trip Reduction, and Congestion Reduction.


·         Implement Comprehensive Market Reforms, Institutional Reforms and Regulatory Reforms to create more economically competitive and efficient transportation markets. Use pricing to internalize transport’s external costs.


·         Base transportation planning on Accessibility, not mobility.


·         Favor policies that improve Transportation Options when they can be justified on equity or efficiency grounds.


·         Implement policies that result in more efficient use of existing transport resources, using Pricing, Prioritization and other management strategies.


·         Implement Energy Conservation strategies to reduce the economic burdens of energy inefficiency and imported fuel.


·         Apply Smart Growth policies to integrate transportation and land use policies.



Who is Wealthier?

Mike lives in an automobile-dependent community where nearly all travel is by automobile. He earns $52,000 annually of which $12,000 is spent on transportation.


Frances lives in a community with balanced transportation. She walks, cycles, rides transit, and uses a rental car whenever necessary. She earns $50,000 annually of which $5,000 is spent on transportation.


Who is wealthier? Conventional economic analysis would say that Mike is economically better off because he has more gross income, but his high transportation costs consume a major share of his budget, leaving only $40,000 annually for other goods. Frances earns less in total, but has lower transportation costs, resulting in a non-transportation budget of $45,000. She has more money to spend on other goods.


TDM programs allow consumers to reduce their transportation costs can increase personal wealth, equivalent to an increase in post-tax income. However, most economic analyses do not recognize this benefit.




Transportation policies and planning decisions significantly affect economic development, including productivity, employment, wages, property values and tax revenues. These impacts should be considered in transportation decision-making, including Transportation Demand Management evaluation. TDM strategies tend to support economic development by increasing transport system efficient, which increases productivity and reduces the economic costs of importing resources. Some TDM strategies are particularly effective at supporting economic development objectives because they improve commercial transport efficiency, reduce congestion and accident costs, shift consumer expenditures from vehicles and fuel to more locally produced goods, or support community redevelopment.


Conventional transportation planning practices tend to overstate highway expansion benefits and undervalue improvements to alternative modes and TDM strategies. More comprehensive analysis which takes into account indirect impacts tends to recognize more economic benefits from TDM solutions.


Although expenditures on motor vehicles and roads support many industries, they tend to provide less employment and business activity than alternative expenditures. Regions that already have adequate paved highways are unlikely to see major economic development benefits from increased road capacity. Many benefits associated with roadway capacity expansion are economic transfers rather than true productivity gains. Alternative investments and TDM strategies that lead to more efficient use of existing transport systems are likely to provide greater economic benefits.


Transportation Demand Management can be particularly effective at achieving economic development objectives by increasing productivity and employment, and providing consumer savings and benefits. Many TDM strategies reflect efficient market principles. However, TDM policies and programs must be well planned to maximize economic development benefits.


Wit and Humor

A woman having lunch on a park bench watched two landscaping workers in the rose garden. The first one dug holes. As soon as each hole was completed the second worker filled it in. After a dozen such holes were dug and filled the woman couldn’t contain her curiosity. “You don’t seem to be accomplishing much,” she commented.


“You don’t understand,” explained the first worker. “We are usually a team of three: I dig the holes, Bill plants the rose bushes and Bob here fills them in. Bill is home with the flu today, but that doesn’t mean that Bob and I can’t work, does it?”



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This Encyclopedia is produced by the Victoria Transport Policy Institute to help improve understanding of Transportation Demand Management. It is an ongoing project. Please send us your comments and suggestions for improvement.




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