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Transportation
Published in: Transportation 3/2011

01-05-2011

Estimating the agglomeration benefits of transport investments: some tests for stability

Authors: Daniel J. Graham, Kurt Van Dender

Published in: Transportation | Issue 3/2011

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Abstract

The case for including agglomeration benefits within transport appraisal rests on an assumed causality between access to economic mass and productivity. Such causality is justified by the theory of agglomeration, but is difficult to establish empirically because estimates may be subject to sources of bias from endogeneity and confounding. The paper shows that conventional panel methods used to address these problems are unreliable due to the highly persistent nature of accessibility measures. Adopting an alternative approach, by applying semiparametric techniques to restricted sub-samples of the data, we find considerable nonlinearity in the relationship between accessibility and productivity with no positive effect to be discerned over broad ranges of the data. A key conclusion is that we are unable to distinguish the role of accessibility from other potential explanations for productivity increases. For transport appraisal, this implies that the use of conventional point elasticity estimates could be highly misleading.
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Footnotes
1
Much of the empirical work on agglomeration uses wage based models. For the purpose of transport appraisal it is considered important to have an estimate of TFP effects rather than labour productivity alone since we expect changes in accessibility to affect the productivity of labour and capital (e.g. Graham 2007a; Mare and Graham 2010).
 
2
A distinction is sometimes made between intra-industry and inter-industry agglomeration, referred to respectively as localization and urbanization. It can be argued that the basic mechanisms underpinning the advantages derived from agglomeration are common to each (Duranton and Puga 2004). Since changes to the transport system affect accessibility in general, and not in some industry specific way, it is sufficient here to consider the concept of agglomeration in general as being derived from either broad class of externality.
 
3
It is possible that the level of agglomeration can exceed some ‘optimal’ amount. See for instance Graham (2007b).
 
4
Note that it is possible to incorporate some explicit measure of transport accessibility in (4), such as travel time or generalized cost, but this poses severe problems of endogeneity in estimation because journey times tend to be simultaneously determined with productivity, due for instance, to the effect of congestion (e.g. Rice et al. 2006; Graham 2007b). Furthermore, in relation to appraisal, the DfT make the argument that since benefits to business and freight users from reduced congestion are already included in willingness to pay calculations distance based measures of accessibility are more appropriate than those based on travel times (DfT 2007).
 
5
There are 11,344 postcode sectors defined in our data for which there are extensive detailed employment data that allow us to construct measures of access to economic mass.
 
6
A good summary of this literature is given in Baltagi (2005). For a full discussion of GMM in the context of dynamic panel models see Arellano and Bover (1995), Arellano and Honore (2001), Blundell and Bond (1998), Blundell and Bond (2000), Blundell et al. (2000).
 
7
Bound et al. (1995) provide some good examples of the problems associated with the use of inappropriate instruments.
 
8
A key problem here is that the commonly used diagnostic test for instrument exogeneity, the Hansen test, has poor finite sample properties (see for example Andersen and Sorensen 1996; Bowsher 2002). To quote Hahn and Hausman (2003), even using the standard tests for instrument validity “the researcher may estimate ‘bad results’ and not be aware of the outcome” (p. 118).
 
9
The full methodology and a background to Crossrail can be found in DfT (2005).
 
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Metadata
Title
Estimating the agglomeration benefits of transport investments: some tests for stability
Authors
Daniel J. Graham
Kurt Van Dender
Publication date
01-05-2011
Publisher
Springer US
Published in
Transportation / Issue 3/2011
Print ISSN: 0049-4488
Electronic ISSN: 1572-9435
DOI
https://doi.org/10.1007/s11116-010-9310-0

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