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Assessing Indirect Economic Effects Caused by Large Transport Projects

Transport Projects

Investing in large transport projects affects the (potential) economic development of metropolitan areas. Yet, Transport Projects very little critical research has been performed to understand how to assess these effects. The relationship between infrastructure investments and regional economic development is complex and indirect, and many theoretical and methodological difficulties remain. On the one hand, the assumption that investing in infrastructure is important to sustain economic growth is sometimes doubted. On the other hand, it is argued that investments in infrastructure enhance the accessibility of urban regions and that in the slipstream of such investments, social problems in urban regions can be tackled as well. Despite these contrasting views, there is at least a consensus that transport infrastructure development depends on economic development and vice versa. Yet, in many cases, the method of assessing economic impacts highly affects the results. Therefore, this paper focuses on a critical reflection of methods for estimating economic effects of infrastructure investments. A critical evaluation is made based on Indonesian and Japanese cases. After conducting in-depth desk research on both cases, we found that the broader effects on affected group of people tend to be overlooked due to the problems of time and space dimensions, the chain reaction of effects, and inappropriate data practices. The assessment on the appraisal processes tends to overlook the broader economic implication due to narrow focus and the concept of efficiency of economic theory.

For the last decade, the proponents of large infrastructure projects tend to structurally oversell the magnitude of growth effects [1]. A large scale project is usually associated with big money, long duration, numerous stakeholders, poor performance records, enormous resource use, inherent risk, complexity, and uncertainties [2]. It is sometimes perceived as a magical strategy to achieve greater economic growth by the project proponents in an over-optimistic way (see [1] ). However, the relationship between large infrastructure project investments and economic growth is indirect and questionable. Some studies show that investing in large-scale infrastructure affects (potential) economic development [3] [4] [5]. However, the economic effects are different among projects in terms of direction and magnitude [6]. Thus, a common understanding of the indirect effects is hard to achieve.

There are two major problems. First, the effects of large infrastructure projects are interrelated. In terms of service improvement, investments awaken diverse interconnected economy-wide processes and benefit a set of sectoral, spatial, and regional impacts, increasing productivity as a whole [7]. However, due to contested nature of the information supply, the process of generating information has led to the negotiated knowledge rather than objective knowledge [8]. Thus, there is a tendency to misunderstand these effects due to spatial multiplier effects and possible specification biases [9]. Second, the planning stages consist of complex uncertainties. In the decision-making process, different opinions among policy-makers about budget allocation tend to frustrate the process. This is mainly because large scale investments raise risk and uncertainty in dealing with design, construction, and funding [10]. Later, the frustration effects unsurprisingly contribute to political discussions—regarding volume and location of the projects—to generate as many indirect economic effects as possible. Unfortunately, these effects are hard to predict.

Because of these problems, a common understanding of the indirect economic effects of infrastructure development is important. However, very little critical and empirical research has been performed concerning how these effects can be assessed (see [11] ). Therefore, this paper aims to provide a critical reflection on assessing indirect effects of large scale transport projects appraisal. This is important because politicians are captivated by large scale, and any analysis during the development processes could easily be manipulated and thus needs to be standardized [12].

The next section outlines the assessment methods. First, the identification of different effects is presented along with the methods. Second, to challenge these methods, theoretical and methodological pitfalls are demonstrated. Further, empirical insight on an Indonesian case is presented. As a comparison, a Japanese case experience is briefly described. Finally, some concluding remarks, as a reflection, will give recommendations for future research.

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