Some thoughts on high-speed rail – part 5: Economic Development

There is no grounded empirical work to date on the economic development impacts of high-speed rail in the United States, since such services do not exist. Little has been written from objective (as opposed to vested) sources. The Congressional Research Service has tried to balance the arguments:

Promoting Economic Development
“HSR, according to supporters, promotes economic development, as well as potentially beneficial changes in land use and employment. In the short term, it is argued, jobs will be created in planning, designing, and building HSR. By improving accessibility, HSR, it is thought, will spur economic development and the creation of long-term jobs, particularly around high-speed rail stations. For example, the California High-speed rail Authority argues that its proposal for a HSR connecting northern and southern Californian cities will create 160,000 short-term construction-related jobs, and 450,000 long-term jobs.18

Although skeptics point out that increasing spending on anything will create short-term jobs, some research shows that infrastructure spending tends to create more jobs than other types of spending.19 In terms of longer-term benefits, however, the U.S. Government Accountability Office (GAO) notes that quantifying these benefits can be difficult, and “while benefits such as improvements in economic development and employment may represent real benefits for the jurisdiction in which a new high-speed rail service is located, from another jurisdiction’s perspective or from a national view they may represent a transfer or relocation of benefits.”20 On the question of whether HSR can provide economic benefits for the national economy as a whole by increasing depth of labor markets and improving business travel, the UK transportation policy study discussed earlier notes that “such effects are quite limited in mature economies with well developed infrastructure.”21 This study notes that building a HSR line between London and Scotland would probably provide modest economic benefits at best because air carriers already provide fast and frequent service at a reasonable cost for business and other travelers.”[]

The job estimates from California cited in the preceding paragraph would be enormous if they could be validated. A single infrastructure project creating 450,000 jobs, (out of a total civilian employment of under 16 million 22) gives a total of almost 3 percent of the state’s workforce. The construction related jobs alone are 1 percent of the state’s workforce. Presently, construction alone is 577,000 jobs, so this project would absorb on the order of one-third to one-fourth of all construction jobs in the state.

While the propaganda of project promoters may not be plausible, logically there are some regional effects. An argument could be made about strengthening intercity linkages to refashion the current metropolitan system into a megalopolitan system, where people more regularly interact between cities. One could envision this as Switzerland writ large. If, as Adam Smith suggests, the division of labor is limited by the extent of the market, and transportation can be used to expand the market, the division of labor can therefore increase (i.e. be more specialized), which should have some positive effects for the economy (akin to agglomeration economies). Melo, Graham, and Noland conduct a meta-analysis of estimates of urban agglomeration economies from 34 studies. The ranges of effects are quite large, and no clear conclusions about the magnitudes can be drawn. The authors write “The findings support the intuition that agglomeration estimates for any particular empirical context may have little relevance elsewhere.”.

Whether HSR will expand markets then depends on whether it is faster (point-to-point) than alternative transportation modes, or allows users to be more productive, which depends again on context.

There is little else to say on this subject without entering the same realm of speculation that project advocates have.

One thought on “Some thoughts on high-speed rail – part 5: Economic Development”

  1. I agree – I believe that high speed rail creates a lot of economic development for the local area. I lived in a city where a new rail system was built and it made the area around it boom

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