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Highway capital expenditures and induced vehicle travel

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  • Concas, Sisinnio

Abstract

We investigate the effects of public capital investment on the demand for travel. We define capital stock as a productive flow that accounts for the physical deterioration of infrastructure over time. We present a framework where additions to capital stock only cover a portion of the long-run equilibrium level, and where policy decisions are dictated by expectations of economic and travel growth. To the extent that these investments increase productivity, they generate induced travel. Using a panel dataset at the state level for the period 1982-2005, we find that the elasticity of travel demand with respect to changes in state highway capital stock is equal to 0.041in the short run, while the long-run is 0.237. Our results show that changes in capital expenditures in response to past levels of traffic are characterized by a three-year lag, suggesting that the investment response to changes in travel is slow to converge to the desired long-run levels.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40757.

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Date of creation: 01 Aug 2012
Date of revision: 12 Aug 2012
Handle: RePEc:pra:mprapa:40757

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Keywords: highway capital; public capital; capital accumulation; induced vehicle travel; induced vehicle miles of travel;

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  1. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  2. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  3. Fisher, Walter H & Turnovsky, Stephen J, 1998. "Public Investment, Congestion, and Private Capital Accumulation," Economic Journal, Royal Economic Society, vol. 108(447), pages 399-413, March.
  4. Dessus, Sebastien & Herrera, Remy, 2000. "Public Capital and Growth Revisited: A Panel Data Assessment," Economic Development and Cultural Change, University of Chicago Press, vol. 48(2), pages 407-18, January.
  5. A. B. Prakash & E. H. D'A. Oliver & K. Balcombe, 2001. "Does building new roads really create extra traffic? Some new evidence," Applied Economics, Taylor & Francis Journals, vol. 33(12), pages 1579-1585.
  6. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  7. Phil Goodwin & Robert Noland, 2003. "Building new roads really does create extra traffic: a response to Prakash et al," Applied Economics, Taylor & Francis Journals, vol. 35(13), pages 1451-1457.
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