2. Answers Emerging from the Literature Review (Page 3 of 4)

2.4 In What Sectors Has This Productivity Effect Been Most Pronounced?

2.4.1 Classification of Literature Findings

A summary classification of literature findings related to public infrastructure impacts on productivity is presented in Table 3.

Table 3: Classification of Literature Findings Related to Question C: "In What Sectors Has This Productivity Effect Been Most Pronounced?"

	Direct Investigations	Indirect Investigations
Number of Citations	* 6 [9], [23], [27], [38], [51], [56]	3 [31], [43], [52]
Percent of Total Citations	6	3
Range of Quantitative Findings	Potential logistics restructuring benefits for several surveyed industries are between 14 and 64 percent of the direct conventional benefits resulting from infrastructure improvements. The average elasticity of cost with respect to highway capital is about -0.04 to -0.06. The output elasticity in different industries in respect to highway capital ranges from 0.12 to 0.02.	A study about the Kansas Comprehensive Highway program measures the economic impacts of the $2.86 billion spent on state highway system over eight years. It is argued that the economic impact of this program as measured by output is $7.4 billion, as measured by income is $1.4 billion, and, as measured by employment is 117,820 full time jobs.
Nature of Qualitative Findings	The greatest benefit from highway improvements accrue to the industries that are most intensive users of highways: Trade, Finance, Insurance, Real Estate, Transportation Equipment and Motor Vehicle, and Construction Given a level of output, an increase in highway capital leads to a reduction in demand for labor and materials and an increase in demand for private capital. Roads were exceptionally productive before 1973 but are not so productive at the margin thereafter.	A series of case studies have shown how individual firms or specific industries have used transportation as catalyst to improve their productivity. Methodologies, available to analyze the relationship between transportation investment and productivity, are identified, critically evaluated, and applied to a sample of case studies.

* Numbers in square brackets give citation number in Appendix 1.

2.4.2 Review of Literature Findings

The contribution of transportation to freight productivity is well documented by DRI/McGraw research (1994). An interesting finding is that railroad and motor freight, from 1963 to 1991, were top productivity performers, surrounded by "high technology" sectors. The aggregate transportation services sector contributed 8.3 percent to national productivity gains for the same period. Fernald (1999) explores the relationship between public capital, focusing on roads as its largest element, and macroeconomic productivity. His study strongly supports the notion that industries with a lot of vehicles benefit disproportionately from road building.

An innovative line of research focuses on measuring the effects of infrastructure improvements on freight transport characteristics (travel time, travel time reliability, travel cost), and through them, on industry productivity. It was conventionally assumed that the value of user and system benefits include the total value of productivity and output gains that occur due to a transportation infrastructure investment. However, if an improvement in the transportation system is large enough, some firms will choose to restructure their logistics practices in order to take advantage of improved transportation. This will be a source of an additional logistic restructuring benefits not captured by the traditional approach. An industry survey performed by Hickling (1995.) found that the industries, which had the biggest traditional and logistics related benefits from infrastructure improvements, are medical and surgical instruments, automotive parts, telecommunication equipment and retail food. Moreover, it was found that the potential benefits from industrial restructuring are within the range of 14 to 64 percent, for the surveyed industries, relative to conventional benefits.

Nadiri and Mamuneas (1998) estimate the average elasticity of cost with respect to highway capital for 35 industries. They find that an increase in highway capital does reduce costs in all but three industries. The elasticities are relatively large in sectors such as Services, Trade, Finance, Insurance, Real Estate, Agriculture, Transportation Equipment and Motor Vehicle Manufacturing. These industries are the most intensive users of the highway network. For most of the manufacturing industries, the elasticities are about -0.04 to -0.06.

The cost reduction due to an increase in highway capital may lead to a reduction in output price. As a result demand for output will increase. The output elasticity in different industries, found by Nadiri and Mamuneas (1998), ranges from 0.121 for Trade to 0.017 for Instruments. The industries with the largest output elasticity with respect to highway capital are some of the service industries, transportation industries, the construction sector, and some manufacturing industries.

The magnitudes of the elasticities of employment, private capital and materials with respect to highway capital vary across industries. The empirical findings suggest that in most industries highway capital and private capital are complements. This complementary effect is relatively large in industries such as Crude Petroleum and natural Gas, Utilities, Trade, Finance & Real Estate, and Other Services.

Marginal benefit of highway capital, defined in terms of industry cost reduction with respect to highway capital, indicates the "willingness to pay" for an additional unit of highway capital services by each industry. These benefits are measures of the highway system's externality benefits to various industries. The largest benefits occur in service industries – Trade, Finance, Insurance and Real Estate, Other Services, Construction, Kindred Products, Machinery except Electric and Motor Vehicles.

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