Towards an economic appraisal methodology to better capture positive urban economic externalities arising from agglomeration - for particular application to urban transport investments

Abstract

Conventional cost benefit appraisal (CBA) consistently yields higher benefit cost ratios (BCRs) for road projects than for most public transport investments. This affects the ability to motivate the levels of investment needed to realise the intent of national transport policy that prioritises public transport, especially in metropolitan areas. While modern CBA methods make provision for negative externalities such as accidents and environment, positive externalities like supply chain efficiencies in the freight sector and urban economic functionality efficiencies in the public transport sector, are not well catered for. Under-representation of positive externalities may yield misleading CBA results and hence over or under investment in different transport infrastructure sectors. Based on evidence of urban agglomeration economies, that are most pronounced in cities that have a wide range of transport modes, a simple appraisal method is proposed that imputes long-term GDP growth uplift to investments in an appropriate programme of transport systems in Gauteng Province in South Africa. A range of collateral institutional and economic policies, designed to enhance theoretically demonstrated economies of agglomeration, are noted. Further research is proposed to confirm the nature and scale of the linkages between an ‘urban economic efficiency’ focused programme of transport investments, and enhanced GDP growth.