UC Irvine Institute of Transportation Studies

This paper examines how road and highway investments redistribute economic activity by dividing the economic impacts of transportation infrastructure into a direct and an indirect effect. The direct effect is the impact near a street or highway. The indirect effect is any impact that occurs at locations more distant from the corridor.

To be more specific, for purposes of this paper, the direct effect is the economic impact within the same jurisdiction that contains the street or highway. The indirect effect is the economic impact outside of the jurisdiction that contains the street or highway. Since this paper uses data on California counties, the direct economic effect of a county's transportation infrastructure includes economic impacts within the same county. The indirect effect is any impact that street or highway capital in one county has on economic conditions in other counties.

Those studies that examine economic impacts near particular corridors ( e.g. Seskin 1990; Weisbrod and Beckwith 1992) measure only a direct effect. 1 Yet, as Forkenbrock and Foster (1990) persuasively argue, nearby economic impacts are only part of the story. This paper uses data on street and highway infrastructure in California counties from 1969 through 1988 to verify the existence of both a direct and an indirect effect of road and highway capital. The results show that ground transportation infrastructure has partially opposing direct and indirect effects. This suggests that, as both Forkenbrock and Foster (1990) and Mohring and Harwitz (1962) hypothesized, some of the economic activity associated with transportation infrastructure investments would have occurred elsewhere had the road or highway not been built.