6. STEP 4: SELECT AND APPLY ECONOMIC IMPACT TOOLS

This section describes the general framework for modeling economic impacts of major freight transportation projects. It is organized into five parts:

1. Initial screening to define overall economic benefit;
2. Recognition of industry reorganization effects;
3. Recognition of national and local distinctions;
4. Application of economic models to assess impacts; and
5. Final analysis and presentation of results.

6.1 Phase 1 Screening: Overall Economic Benefit

The overall economic benefit of a major freight transportation project is a total dollar value of all time, expense, reliability, safety, and capacity (throughput) impacts. At an initial screening level, it is the total value of the benefit rather than the beneficiary that is most important. However, the measurement needs to be generally complete (i.e., without any major known omissions of benefit categories). That is why it is important to consider not only how new freight projects can affect vehicle operating cost and driver time cost (as experienced by carriers), but also the cost impact of changes in transportation logistics and warehousing, loading dock and order processing costs, and the scheduling of production and service providers (as experienced by shippers).

The process of translating transportation system impacts into economic impacts involves three elements that can be addressed using transportation system network models together with geographic information about traffic analysis zones (or equivalent):

• Translating time, reliability and cost impacts (by mode and trip purpose) into effects on productivity and competitiveness of affected sectors of the economy;
• Translating access impacts (which are based on improved travel speed) into effects on feasible freight delivery markets and feasible service to/from intermodal and international port facilities; and
• Translating commodity cost and access changes into industry competitiveness and market impacts at regional, national, and international levels.

After determining the effects of transportation investments on availability and cost changes for carriers and the proportion of cost changes that are passed on to shippers in the form of price reductions, first-order impacts can be estimated using economic models.

Traditional Approach. The traditional approach for measuring economic benefits of transportation improvements is built on models originally designed for passenger travel demand analysis. This approach focuses on estimating the value of cost reductions for vehicles and their operators, which in the freight context means the operating impacts as experienced by freight carriers. Using this approach, analysts first determine the proportion of cost reductions that are experienced by freight carriers and assumed to be passed on to shippers. In a regional or national economic model, the portion of cost savings passed on to shippers can be input to an economic model as a reduction in the “cost of doing business” for carriers and the industries with in-house transportation fleets. The model then estimates: 1) the cost savings benefit to industries that use goods and services from the carriers and other industries by way of expanded market share and business production; and 2) competitive benefits for carriers relative to other regions that lead to direct employment and output impacts for carriers and the indirect employment and output impacts at their suppliers.

Methods to Add in Logistics Costs. The problem with the traditional approach is that it neglects logistics-related economies of operation for shipping firms (freight system users), which can underestimate total benefits by as much as 10 to 40 percent (FHWA, 2004).⁹ To compensate for this, analysts have two options. The first option is to adjust benefits calculations to include these second-order effects (which can add roughly 15 percent to total benefits) and even third-order effects, if desired (which can add an additional 0 to 10 percent in benefits, depending on the size of the transportation cost reduction). Although this approach would yield only a rough estimate of total user benefits and would yield little information on user impacts by industry, it has the merit of being less data-intensive than methods that rely on surveys of shippers and/or additional analyses of likely second- and third-order effects.

The second option is to estimate directly the impacts of transportation improvements on shippers and receivers using survey methods or apportioning benefits based on assumptions about which freight-using industries are likely to benefit most from a reduction in carrier prices. Two survey approaches are possible. For the first approach, industry users would be surveyed about the likely cost changes associated with investments. For the second approach, industries would be surveyed about transportation, modal dependence, and transportation substitution possibilities, with the results used to estimate the relative benefits likely to accrue to each industry. The relative measures could then be used to apportion total expected user benefits to individual industries. These savings would then be modeled as reductions in cost of doing business for shippers and receivers as described above.

In lieu of survey approaches, analysts can estimate user benefits for specific shipping industries using data from the U.S. Bureau of Economic Analysis’ Transportation Satellite Accounts (TSA) data, which provide measures of spending by mode per dollar of output. These data can be used with estimates of output by industry in the project area: the product of TSA and total output vectors will yield an estimate of total spending by mode by industry, which can be used to apportion total cost savings from carriers to individual shipping industries. Estimates of savings by industry can then be entered into an economic model as a reduction in the cost of doing business for each (shipping) industry. This will yield estimates of the direct and indirect effects on employment and output for freight users and their suppliers, including those that provide transportation services. However, this approach will provide a conservative estimate of the economic impact of transportation investments because it does not address second-order benefits (i.e., the reorganization of transportation and logistics systems, triggered by the reduced cost or increased quality of one or more transportation modes).

Unfortunately, it is difficult to predict a priori the economic impacts associated with second-order benefits. The empirical work on this question requires time- and resource-intensive case studies. As such, treatment of second-order effects will depend on characteristics of the analysis being performed. In cases where resources are limited and there is no reliable information on likely modal substitutions or case studies of local reorganization effects, analysts typically have focused on an analysis of first-order economic impacts and either: 1) note that the resulting benefits estimates are conservative because they neglect second- and third-order effects; or 2) adjust results to reflect likely second- and third-order impacts by increasing benefits calculation by 15 to 25 percent, depending on the size of the likely transport cost reduction. As part of the development of this report, new research was conducted to detail the actual linkage between transportation and supply chain benefits to freight shippers and receivers. That work (led by Boston Logistics Group) is summarized in Appendix A and provides new estimates of expected supply chain logistics benefits that firms can experience in addition to direct transportation cost reductions. The techniques suggested by Boston Logistics Group categorize industries by generic supply chain types and the importance of different transportation performance characteristics to these generic supply chain types. Then, typical cost savings from supply chain logistics adjustments can be related to the supply chain type to estimate second- and third-order impacts of transportation system improvements.

6.2 Industry Reorganization Effects

To translate the range of direct impacts that can follow from freight facility and service changes, it is useful to define the ways that a major transportation project may affect carriers and shippers. These are presented in Table 6.1. Not all of these parties will necessarily be affected by any one specific project, but all must be considered at the outset to ensure that the key affected parties are recognized and that appropriate methods for economic impact analysis are selected. These effects on freight carriers and shippers provide a basis for calculations and models used to estimate the national, local, and economic sector impacts of transportation investments.

Table 6.1 Measures of Direct Economic Impacts on Carriers and Shippers/Receivers

Reducing freight costs in one or more transportation modes often lowers production costs and increases market demand for freight carriers. When these cost reductions for carriers are passed on as price reductions for shippers, these investments can also influence costs, opportunities, and behavior at the shipping firms. Recent research describes the sequence by which these direct cost reductions may be expanded using logistics and productivity adjustment factors to increase the final economic benefits. The series of processes generating these additional benefits were developed in a series of studies for FHWA, and are summarized in the box below.

Although logistics models generally capture intermodal substitutions, none has been identified that explicitly models substitutions between transportation and other logistics services. Survey approaches that capture both intermodal substitution and substitution between transportation and other logistics services could potentially be designed. These savings are the second component of second-order benefits. The level of benefits associated with reorganization of distribution will vary according to the size of the transportation cost reduction but can be substantial.

Prior studies suggest that when transportation cost reductions are less than 2 percent, there is little or no measurable impact on shipper benefits, but that at transport cost reduction levels of 20 percent, reorganization effects can add an additional 9 percent in benefits (ICF/HLB, page A-14).¹⁰ Other potential benefits include additional adjustments in operations due to reduced need for schedule padding to allow for uncertainty in delivery times. In cases where these are important, they need to be estimated separately using available reliability models.

Related work has identified additional stages related to shipper response to improved quality or reduced cost of transportation and logistics services:

• Firms that have reorganized their distribution systems could (simultaneously or subsequently) also reorganize their production systems. For example, firms that develop just-in-time distribution systems could use this as an entrée to introduce just-in-time production systems. Case studies suggest that savings from introduction of JIT manufacturing methods can create large savings on the assembly line.¹¹ However, it is very difficult to predict whether and which firms will reorganize their production systems in advance of transportation investments. To do so would require analysts or firms themselves to be able to predict the types of broad reorganization that could be undertaken years down the road; and to predict how competitors and other related actors (e.g., carriers, suppliers, and customers) would respond. For these reasons, these impacts are usually not considered in economic impact studies for proposed transportation investment projects.
• Reorganization of distribution and/or production systems can create new capabilities that allow firms to enter new product lines. For reasons similar to those stated above, these impacts are also generally too difficult to model.
• Firms with improved access to markets (because of better transportation systems) might enter new geographic markets and as a result, face demand or realize opportunities to enter new product lines. There are models (“attraction models”) that estimate the effects of market access on employment and output in local areas. There are no models that explicitly link access and entrance into new product markets.

6.3 Establishing National and Local Distinctions

The transportation and economic effects mentioned above all relate directly to efficiency, productivity, and national economic gains. In addition to these national gains, transportation investments also lead to enhanced regional competitiveness and can affect a region’s share of economic growth. In particular, some projects can reasonably be expected to have an effect on business attraction and retention. This could have a mostly off-setting transfer of activity impact at the national level, but be a benefit for local economies. While not as relevant for Federal decision-makers, local/regional economic impacts can be and are often used as partial justification for state or local funding of transportation projects.

For example, the proposed Cross Harbor freight tunnel in New York City also includes a new intermodal freight terminal in Queens that could lead to enhanced warehousing and distribution activity east of the Hudson River. This gain in activity represents a benefit for New York City regions, but could shift future economic growth in this industry from other areas (New Jersey, Pennsylvania, etc.). The key point is that traditional job estimates related to transportation projects are typically estimated at the local, state, or regional level without consideration for national macroeconomic implications. This framework is intended to focus on economic efficiency gains, but recognizes the importance of other local/regional effects, especially as it relates to justifying projects and funding from the local perspective.

Another aspect of local/regional economic benefits relates to market share for trade activity. For example, improvements in operations and connectivity at Gulf of Mexico ports in Texas could increase their share of trade activity with Latin America and the Caribbean but at the same time, reduce the share of activity in Louisiana, Mississippi, Alabama, and Florida. Such hypothetical improvements in Texas would likely have both a national efficiency benefit and a local economic competitiveness benefit.

Use of Multiple (National and Local/Regional) Perspectives. Among the many metrics that can be used to portray local/regional and national economic benefits, the relative importance of each of these measures will depend on the nature of the investment, its funding sources, and the objectives of the project. As depicted in the case studies to follow (Chapter 8), most large projects do have impacts across multiple jurisdictions. For example, potential Gerald Desmond Bridge improvements at Port of Long Beach are expected to produce a combination of local, regional, and national benefits, including reduced shipping and receiving costs for exporters and importers across the United States. Again, the emphasis for Federal funding decisions is on national-level impacts (benefits and costs), but there are also reasons to consider local/regional impacts for state and local funding considerations.

National Economic Impacts. The primary national economic impact of large-scale freight projects comes in two forms: 1) the direct transportation cost savings and productivity effects experienced by industries; and 2) the broader economic and industry effects on business output and value-added due to cost and productivity benefits. The cost and productivity benefits can be measured through first and second order effects that allow businesses to experience reductions in the cost of doing business and also produce more goods with an equal or smaller number of inputs. The broader business output and value-added¹² effects can be estimated using macro-economic models, translating direct effects into business productivity and international trade effects.

Competitive and business attraction benefits that accrue to the local economy will to some extent be offset by losses elsewhere in the nation. That is, when a local economy benefits from higher sales brought on by lower production costs associated with transportation projects, some of these sales will displace sales from now less-competitive locations in the U.S. Similarly, some business attraction gains spurred by improved market access will represent losses for areas that lose businesses or that would have otherwise attracted these businesses. The national economic metrics listed later in Table 6.2 represent/provide measures of the net effect of investments on national output and employment by netting out economic benefits in one area that are offset by losses in another area.

Consequently, the relationship between local/regional and national economic impacts (i.e., whether national is greater or less than local and by how much) will be shaped by a number of factors. Primarily, this relationship is determined by the magnitude of transportation cost savings for the broader economy (determined by O D patterns) compared to any local/regional business attraction/retention effects.

This also includes the degree to which the transportation project increases the competitiveness of U.S. transportation and nontransportation firms relative to their competitors in North America and elsewhere in the world. For example, projects that improve access to U.S. coastal ports that compete with Canadian and Mexican ports will improve the competitive position of U.S. ports and the transportation firms that serve them. Projects that reduce shipping and exporting costs will also benefit nontransportation firms, especially those U.S. firms that compete in export markets. In these cases, much of the benefit to any one local economy could come at the expense of firms located outside the U.S. and thus generate a greater net national benefit than projects that benefit firms that compete primarily in regional or national markets.

The importance of sales in non-U.S. markets (i.e., exports) to the net national economic impact means that those projects that directly or indirectly affect time or cost of utilizing marine ports, airports, or (e.g., U.S.-Canada) border crossing points are likely to generate significant benefits to firms outside the “local” economy (i.e., the economic area in which the transportation project is implemented). This is because airport, marine port, and border crossing projects can all affect the cost of exporting and importing and thus will affect a broader set of firms than a project that influences only intra-area freight movements. Thus, characteristics of a transportation project will influence the relative impacts on local, regional, and national economies.

Characteristics of the local economy will also affect the impact on national economic output and employment. Many key export industries are concentrated in one or a handful of local economies. For example, in 2003, Michigan (motor vehicles) and Washington State (aircraft) each accounted for about 15 percent of all U.S. transportation equipment exports, while California accounted for about 25 percent of the U.S.’ $150 billion in computers and electronics products exports.¹³ Moreover, each state’s export record is strongly associated with a particular metropolitan area: Detroit for motor vehicles, Seattle for aircraft, and Silicon Valley for computers and electronics. In these cases, “local” transportation projects in the vicinity of export clusters could have the potential to generate significant national benefits. Depending on characteristics of the local economy, then, projects that are primarily local in scope can lead to a significant increase in exports and thus national economic impacts.¹⁴

Finally, it is important to note that distributional effects on local and regional business location can lead to further economic benefits at a national scale insofar as they make better use of existing resources. For instance, if the project facilitates better use of currently available but under-utilized labor and/or capital resources, then that could represent an additional benefit in a benefit/cost calculation. On the other hand, if the project will require additional off-site infrastructure investment in order for the region to accommodate the additional population and employment growth, then those impacts should be recognized as either additional costs or a reduction in net benefit (depending on who is paying).

Local/Regional Economic Impacts. The biggest difference between national impacts and local/regional economic impacts is that some projects and analyses will capture a business attraction/retention effect or increase in market share that primarily benefits local/regional economies but is largely offset elsewhere in the nation such that the total U.S. benefit from those effects is near zero.

Local/regional economic impacts of transportation projects will depend on the types of improvements associated with the project. There are three general types of project effects that influence local economic activity. The first is the reduction in business costs (i.e., transportation, logistics, and production costs) from reduced travel times and costs, which improve the efficiency and competitiveness for existing users of the transportation system. The second is improved access to labor, supply, and output markets, improvements that increase the business attraction potential in the area. The third is amenity benefits in the form of things like reduced travel time and costs for nonbusiness travel, reduction in emissions, and safety improvements.

The effects on the broader regional economy outside of the immediate local area can be positive or negative. In general, growth in a local economy will stimulate supplier activity in adjacent areas of/in the regional economy. Thus, transportation projects that improve the competitive position of the local economy should have some positive indirect impacts on the regional economy. In addition, as in the Port of Vancouver case study, projects that reduce the costs of exporting by improving time and costs associated with using local ports, will improve the prospects of exporting firms in the adjacent regional economy. The economic impact on the regional economy outside the local economy could be positive. At the same time, increases in the competitiveness or business attraction potential in a local economy may come partially at the expense of the larger regional economy, which could experience reduced sales or loss of potential new businesses to the now more competitive local economy. Depending on the relative weights of these factors, the economic impact in the larger regional economy can theoretically be larger or smaller than in the local economy where the transportation project is implemented. However, in most cases, the overall effect on the regional economy should be positive-that is, (positive) indirect effects in most cases will be larger than (negative) displacement effects.

6.4 Selection and Application of Economic Models

Types of Impacts. Large-scale freight projects can change activity levels at port or terminal facilities, and change travel times and travel costs for various modes. This can lead to resulting impacts on industry costs, markets, and international competitiveness. The national implications of such projects can start by examining implications for origin-destination travel patterns (by mode and commodity type). Additional effects on market accessibility can shift local/regional competitiveness and the potential for an area to capture more market share or retain/attract freight-related firms. Accessibility improvements that connect to major seaports, airports, or border crossings involved in international trade can also increase the competitiveness of the U.S. economy and increase the market share of international trade activity and economic growth.

Recognizing these various types of impacts, the analysis of economic benefits may require economic models with capabilities to evaluate some or all of the following six types of impacts:

1. Freight activity levels (at ports, terminals, carriers and service providers);
2. Inter-industry cost flows (whereby affected industries pass on costs to others);
3. Market access (service area expansion/contraction and economies of scale);
4. Business attraction and expansion (response to cost and access changes);
5. Domestic industry reorganization of distribution and production chains; and
6. Change in international trade.

Figure 6.1 illustrates the relationship between the various elements of economic impact, as a response to either a change in costs for existing travel patterns or a change in market access resulting from a proposed project.

Figure 6.1 Framework for Translating Transportation Impacts into Economic Benefits

Economic Model Options. Depending on the situation, different types of models can be applied. The discussion which follows examines the ability of various types of models to cover the subjects of the boxes in that flowchart.

At the outset, it is important to note that there are many options for regional, national, and international trade models, including both static and dynamic forms of models. The availability of various forms of models is discussed in the Chapter 10 Toolbox. However, for purposes of this guide, it is most useful to distinguish three types of economic impact modeling.

The first level is an input-output (I O) model. This is an accounting framework that can show the inter-industry sales and purchase flows for a given study area. A single region I O model, such as RIMS-II or IMPLAN, provides multipliers that indicate how an increase or decrease in the activity of any given industry or transportation activity (such as railroads, trucking, aviation or marine transportation) will affect jobs, income and business sales for all other industries in the region. A multiregional I O model, as can be provided by IMPLAN and REDYN IO, also show impacts on the economic growth and flow of commodities among regions. While these systems are sufficient for showing the economic impacts of a shift in size of freight transportation-related activities (such as investment in port expansion), they alone cannot show the impact of changes in freight costs or market access.

A variant of this second level of economic model adds “market access” factors to predict how economic growth can also change with shifts in speeds and connectivity that affect delivery areas and modal terminal access (as well as modal costs). The Local Economic Assessment Package (LEAP) has been used to forecast market and terminal access impacts in this way, along with I O forecast and cost response impacts, within the context of a larger system called TREDIS (Transportation Economic Development Impact System). In general, this modeling approach is applicable for showing the regional economic impacts of shifts in multimodal terminal access and multimodal freight costs. However, it assumes that there are no further regional impacts on wage rates, cost of living, housing values, taxes and migration patterns – which can increase or decrease the overall economic impact.

The third level of economic model is a dynamic economic simulation model. This class of economic model provides dynamic forecasts of how regional and national economies change over time as transportation cost changes trigger a sequence of impacts. These regional economy impacts typically include: 1) changes in inter-industry cost flows; 2) shifts in supply and demand for various goods and services; 3) changes in wage rates, housing costs, and business production costs; and 4) changes in relative competitiveness, leading to in- and out-migration of households, capital investment, and business growth. In effect, this approach combines the above cited models with additional price change and migration “feedback” responses that involve some variant of “computable general equilibrium” (CGE) assumptions. REMI Policy Insight,¹⁵ REDYN (Regional Dynamics) Model,¹⁶ and the Global Insight model are most well known in the U.S. In some areas, the Inforum, REAL, and FAIR models are also used.

In the context of this guide, a dynamic economic simulation model system can be useful to show how a reduction in freight transportation costs (for one or more modes) can reduce the relative cost of doing business in an area, which then improves the competitive position of the area because of its increase in productivity (as costs drop, the ratio of output per dollar of cost increases). That in turn leads to an increase in the relative industry growth in the area, raising demand for labor and hence wages rates, which then increases income levels and attracts more workers to move in. Due to its added cost and complexity, this form of dynamic model is most valuable for evaluating large-scale projects, which involve major transportation spending, cost shifts and price changes.

Addressing Known Problems with Economic Simulation Models. Nearly all of the applications of economic simulation models for major transportation project evaluations have required that the models be accompanied by an exogenous analysis to handle impacts that they cannot internally address. These other impacts fall into three categories.

1. First, there are impacts that are beyond price and cost effects, such as transportation service quality and access effects. One example is when an improvement in system reliability affects feasible delivery schedules, and hence feasible business operations (such as same day delivery limitations) which can be well beyond the mere impact on average transportation costs.
2. Also, changes in connectivity can affect economies of scale in serving business markets, as well as feasibility of serving broader national and international export markets that may depend on timely connections to airports or marine ports, or through international border facilities. Economic models based at the county level can miss some of these more detailed flows and cannot distinguish general traffic effects from accessibility changes to seaports, airports, universities, hospitals, etc. These effects require outside travel analysis at a finer level of spatial detail.
3. Most importantly, REMI and domestic CGE models usually assume a generally closed economy with very limited provision for international trade impacts. Yet these are exactly the types of impacts that are commonly associated with major, multimodal projects affecting access to ports and borders.

There are fixes for all of these problems. Some studies of major highway and rail facilities (in Illinois, Louisiana, Indiana, New York State, Appalachia, and California) have combined REMI Policy Insight with the Local Economic Assessment Package (LEAP) economic targeting model, which provides an explicit means to identify additional economic implications of both market access and intermodal access changes, using information about commodity flows. Other studies have combined REMI Policy Insight with a more ad hoc localized analysis of access and connectivity effects conducted on a project-specific basis (e.g., Iowa, New York City, Washington State, and Georgia). In some of these situations, logistics strategy analysis has also been used to identify implications for reorganization of distribution activity patterns.

Other studies of intermodal urban freight and multimodal road and rail options (in Chicago, Portland, Vancouver, and Edmonton) have used the TREDIS model. This is an economic analysis framework and economic model that evaluates how changes in transportation costs and accessibility relate to the operating requirements of various industries. It provides detail on multimodal interactions, and access impacts which affect industry competitiveness and growth.

There are many other approaches that can be applied if appropriate. For instance, it is possible to apply other types of CGE models as used in Europe (such as GAMS and Mirage), which do explicitly provide for international trade impacts. The HEAT tool (as used in Montana) provides an even more comprehensive integration of network, spatial (GIS) and economic models in a consistent framework, though its current form focuses only on highway modes. However, this kind of approach does include a highly detailed analysis of access and potential border trade impacts, with tracking of freight commodity flow changes. HEAT covers both cost and access impacts.

Modeling Considerations. In general, there are important reasons to tailor the form of economic analysis to the specific type of project situation to avoid unnecessary complexity, which require greater resources and additional assumptions to be made. For instance, a capacity constraint on freight flow to a port may be analyzed with input-output models to identify the indirectly affected industries, together with a logistics analysis to identify the costs and availability of viable alternative ports. On the other hand, scenarios which affect costs for international trade facilities may have implications for trade competitiveness which call for a regional economic growth model along with an international trade analysis. If the evaluation is focused instead on reducing costs of delay, then a cost response model may be needed; and if the effects are large enough to shift wage rates and business prices, then a general equilibrium model for regional simulation may be appropriate.

One final consideration when analyzing major transportation projects is the need to maintain consistency between the form of transportation model and the form of economic model. There can be the danger of a critical mismatch if a comparative static transportation model is combined with a fully dynamic economic model, since that would artificially preclude the transportation demand shifts that were previously listed, and thus put undue pressure on the economic model to over-forecast changes in businesses scale and location changes. Most transportation analysis modeling in the U.S. is currently conducted with a “comparative static” approach which represents conditions for the current time and for a target future year, with reassigned traffic routing based on least-cost or least-time paths. However, that approach usually does not allow for recalculation of time-of-day schedule shifts or international shifts of freight flows.

6.5 Final Analysis and Presentation of Results

Multiple Perspectives. The core of the economic modeling must be an analysis of how changes in travel related costs and access factors will affect the growth or decline of various productive activities within an economy. There can be a variety of different metrics used to measure economic impacts of transportation projects, which are listed in Table 6.2. While all can have some value, the measures of impact often need to be organized and aggregated in a way that allow for reporting of costs and benefits from different perspectives. Costs and benefits can be assigned by the affected parties (e.g., public, private, or government), by geographic incidence (local, regional, national) or by economic sectors affected (e.g., carriers versus shippers or transportation versus nontransportation sectors).

Table 6.2 Measuring the Economic Impacts of Transportation Projects

The appropriate perspective for assessing economic benefits and costs of any particular transportation project will depend on a number of factors, including the policy justification for the investment (e.g., congestion relief, local economic development, national efficiency) and the funding source (i.e., the mix of local/state/Federal government and private funds requested or committed). However, for this analysis framework, with emphasis on large-scale projects and Federal funding decisions, we focus on three categories of economic impacts:

1. Estimates of national-level first-order and second-order transportation efficiency benefits (e.g., reduced costs to carriers and freight users);
2. Estimates of national-level economic growth or productivity (e.g., gross domestic product, business output, exports); and
3. Estimates of local/regional economic impacts for local and state funding decisions (e.g., employment, gross regional product, personal income).

As shown in Table 6.3, each of these three categories is represented, often by multiple potential indicators. For Item Number 1, direct transportation cost savings are the Reduced Costs in the National Economic Impacts section (and also the change in production costs in Sector-specific Economic Impacts). Item Number 2 is represented by the multiple final outputs within the National Economic Impacts section, and Item Number 3 is covered by the final outputs of Local/Regional Economic Impacts.

Table 6.3 Example of Macroeconomic Impact Measurement by Category of Affected Party

Detailed Modeling. The detailed modeling is to be carried out using the analysis methods discussed in Sections 6.2 to 6.4, and the tools further discussed in the Chapter 10 Toolbox. The end result will then be measures of impact on the economy at local/state and national levels, as laid out in Table 6.4. This accounting of results has several key features:

• Income Measures. It shows measures of benefit in terms of net income generation. This is shown both in terms of total GDP or value added (which includes labor income and net corporate earnings) and it also includes a separate measure of just the labor income generated.
• Spatial Area. It shows measures of the location of benefit as measured from both national and local/region/state perspectives.
• Flow of Benefits. It distinguishes these benefits into a) results of the direct cost, access and growth capacity benefits to shippers, b) results from reorganization of the economy due to price and demand effects on business suppliers and customers, and c) results from additional wages generating growth in consumer sectors.
• Form of Business Growth. It distinguishes portions of the economic expansion generated because of changes in imports, exports and domestic market growth facilitated by the investment in freight transportation facilities.

A further breakdown of these economic impacts by industry group is also generated as a standard output of most economic models. So the same form of local and national impact measurement can be shown by sector, as illustrated in Table 6.4. The results from these two tables will provide data needed for the final step of decision analysis (which is described in the next chapter).

Table 6.4 Example of Macroeconomic Impact Measurement by Industry