Economic evaluation of

transportation projects

7.1 Introduction
In Chapter 6 we examined models aimed at capturing the impacts of changes in
the aggregate capital stock on national and regional growth. We have shown that
at the present level of knowledge it is impossible to determine unequivocally that
expansion of the existing public capital stock (including transportation
infrastructure) will encourage economic growth. Even if we could conclude with
a reasonable degree of certainty, that further investment in the total capital stock
promotes growth, it is necessary to recognize that such investments are carried
out incrementally, as individual projects are planned, approved and executed one
at a time. Underlying this process of project implementation is a project
evaluation process whose main objective is to determine the economic and social
contribution of a particular project to societal welfare, including economic
growth.
In this chapter we adopt the general definition of economic growth from a
transportation improvement as 'the continuous increase in economic activity, in
the impacted area, that can be attributed to this investment'. As we shall argue
later, if we consider the network aspect of transportation improvements, this
definition might be dubious relative to the delineation of the area of incidence of
the transportation effects. The main objectives of this chapter are: First, to
provide a theoretical explanation for the potential linkage between the prime
benefits from a transportation investment and local economic growth. Second, to
examine in some detail key elements of the evaluation process that affect the
measurement of benefits from a transportation infrastructure project. Finally, to
investigate the extent of the potential economic growth effects.
The dominant approach used in project evaluation is benefit-cost analysis
(BCA).' The essence of this approach is a systematic quantification and com-
parison of the various benefits and costs generated by a project. To that end, the
various effects from the project are first enumerated and classified as benefits or
costs. Subsequently, an attempt is made to quantify each effect and express it in
monetary terms using appropriate conversion factors. Since the