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Hypothesis 2: Transport investments will be the main improvements on the economy

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By analyzing the theoretical investment of the Greater Paris in transportation, we can
understand how important will be its effects on the regional economy.

Savrav Dev Bhatta and Matthew P.Drennan have listed six possible economic benefits from a public
investment in transportation:

1- “Increase in output;

2- Increases in productivity (output per unit of output)

3- Reduction in costs of production

4- Increases in income, property values, employment and real wages

5- Rate of return equal to or greater than the social costs of capital

6- Reductions in non commercial travel time, improved access, improved quality of life”(122)

Researches have been conducted in order to demonstrate these points. Indeed by using statistics and
the linear regressions methods, it became possible to show the correlation between public investments
and measure this impact (negative or positive impact and the scale of the impact).

Acording to the research, there is an increase of output measurable by gross state product (GSP),
private GSP or manufacturing output. Conrad and Seitz (1994) have used different highways, rail,
mass transit and airport to measure the public capital, and measure the economic benefit with the
output in three sectors of Western German economy. The results found out were an increase of the
output and productivity, and a reduction of the costs(123).

Nevertheless, the effects of a public investment will have only a local effect. Indeed, Boarnet
confirmed the positive effects of a highway on the private sector output in a region. He also showed
that this highway will have an indirect impact on the neighboring regions, and a negative significant
effect on private sector output(124).

Alicia Munnel has found out a correlation in 1990, concerning the relation between public
expenditures and productivity. Indeed, the author has shown that some investments have a strong
relationship on the output of firms: transportation, water, gas and electricity are the most correlated
factor to the productivity. Indeed her findings imply that a 1 percent increase in public (or private)
capital will increase output by 0.35 percents. The author also mentioned that even public investments
with a correlation statistically less significant on the productivity (as hospitals or schools), have still an
important impact on the efficiency of the workers (more educated and healthy)(125).

The public investments also have an impact regarding the cost of production. Indeed, Bhatta listed
nine researches showing a correlation between public expenditure and cost reduction, with an
elasticity of -0.05 to -0.21 which concretely means a decline of 0.05 percents to 0.21 percents of the
costs production for an increase of 1% of the public investment(126).

Haughwout showed a correlation regarding house values and public investments in highway. Indeed,
he found out a negative effect of the public investment expenditure regarding in Highway regarding
the house values. Haughwout even specified that houses values located in the city centers will suffer
more that houses located in the suburbs, as they do lost their location advantage(127).

As we have seen, many advantages have been shown off with all these different studies. It is also
important to see the quantified profits to the society of these policies. Different authors have worked
on research to quantify the rate of return on public capital. Nadiri and Mamuneas have estimated a rate
of return range from 4.9 percents to 7.2 percents(128). According to the statistics, and regarding to our
context, an investment of €30 billion Euros (budget to build new transports and improve the existing
structures) this would represent an estimated return of €1.47 to €2.16. Also as previously mentioned,
an investment of €22 billion of Euros just to create the new automatic public transports infrastructures
in the Grand Paris project, would generate 690800 jobs, and companies affected by this project would
gain €66 billion in sales, and the users would save €33 billion.

All these studies show how public/private investments in public transport could affect the Parisian
(and Norman) economy. To conclude the hypothesis 2, we can say that yes, transport investment will
be the main improve of the region regarding the project because of the results possible and expected.

122 Saurav Dev Bhatta, Matthew P. Drennan, “The Economic Benefits of Public investment in Transportation”,
Journal of planning education and research, 2003, P.P.289
123 Conrad,K. and H. Seitz, “The economic benefits of public infrastructure”, Applied Economics 26, P.P 3303-
311 sourced by . Saurav Dev Bhatta, Matthew P. Drennan, “, The Economic Benefits of Public investment in
Transportation”, P.P. 290-292.
124 Boarnet M.G., « The direct and indirect economic effects of transportation infrastructure”, University of
California Transportation Center , n°340, 1996 P.P. 12
125 Munnell, A.H., « Why has productivity growth declined ? », New England Economic Review, 1990, P.P. 17
126 Saurav Dev Bhatta, Matthew P. Drennan, “The Economic Benefits of Public investment in Transportation”,
127 Haughwout, “Regional fiscal cooperation in metropolitan areas: an explanation”, journal of policy Analysis
and management 18, 1999, P.P. 579-600
128 Nadiri, Manumeas, “The effects of public infrastructure and R&D capital on the cost structure and
performance of U.S. manufacturing industries”,The review of Economics and Statistics n°76, 1994, P.P22-37.

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