Economic and environmental impacts of rail transportation investment

Abstract

The transportation system in Thailand has been biased in favor of road transport as investment in rail transport involves large scale budget and government policy. The favorable attribute of rail transport is more competitive freight cost in exchange for large investment. This study employs the computable general equilibrium (CGE) model in ORANI tradition (Dixon et al., 1982) as the tool for the accounting of economic benefits, economic cost, environmental benefits and environmental costs. The increase in rail transport investment is feed into the CGE system to offer the measurement of economic and environmental impacts. The 2005 edition of 58 sectors version of the input-output table of Thailand was used as CGE model database. The original input-output table was modified to single out land transport and rail transport so that the classification consists of 60 sectors. The choice of specification of the CGE model requires a total of 16,414 variables and 15,933 equations which offers 481 structural exogenous variables.

Increase in rail transport investment is the approach used for the measurement of economic impact and pattern of associated structural change and environmental consequence. Economic impact is principally measured in terms of change in real GDP. Structural change is measured in terms of change in output of respective sector. Environmental consequence is measured in terms of change in petroleum consumption coupling with change in output of respective sector. Petroleum consumption is also measured in terms of petroleum-GDP elasticity

In this study, two simulation assumptions are projected to study the possible effects of investment in rail transport. The first simulation assumption analyses the impact of increased capital accumulation in railway in the context of adjustable currency exchange. The second simulation assumption analyses the impact of increase capital accumulation in railway with stable currency exchange. The study of impacts of investment are divided into 2 stages. Rail investment in period T-1 is the source of real GDP growth in period T which allocates investment in period T for sector j. Investment program of sector j in the period T is the source of real GDP growth in period T+1 which allocates investment in period T+1 for sector j. Measurement of economic impacts of rail investment is considered complete when impacts of investment in period T becomes visible in period T+1.

The adjustable exchange rate simulation assumption is based on the assumption of constant trade balance-GDP ratio (delDT) which represents the macroeconomic management for external stability. In this simulation assumption, exchange rate adjustment is endogenously determined within the model. The foreign currency demand and supply are always in equilibrium. With adjustable exchange rate assumption exchange rate is endogenous and is projected to appreciate due to strong exports and weakened imports. In other words, exchange rate appreciation is the result of lower internal prices relative to world prices. This is so since exchange rate is the ratio between Baht and Foreign currency. Increased supply of capital lowers price of goods and services across the economy relative to world price.

The fixed exchange rate simulation assumption is based on the assumption of disequilibrium of imports and exports. Change in trade balance is endogenously determined within the model. The change in trade balance is interpreted as the change in economic stability, and need for change in the trade policy. Fixed exchange rate keeps constant parity between imported goods and domestic goods despite fall in domestic price which makes it difficult for substitution of import goods for domestic goods. Production cost falls more in the adjustable exchange rate simulation assumption as the result of substitution away from imported goods.

The environmental effect is measured in terms of the quantity of carbon dioxide emission across the economy due to change in the rail transportation system. In this study, CO2 emission is calculated in two methods: (1) CO2 emission calculated based on published emission factor; and (2) CO2 emissions calculated based on carbon credit price. Growth of output across the economy, driven by growth of demand induced by favorable price of goods and services relative to imports, involves increasing uses of goods and services for intermediate factors. Petroleum is one of essential intermediate factors used by all production. Output growth driven by rail investment is connected with the environment via uses of petroleum. Environmental impacts is measured in terms of quantity of CO2 emission for a unit of increased output. Uses of petroleum in value terms is converted to quantity of CO2 emission for a unit of increased output.