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ACE's Barriers to Investment report aims to review and analyse a range of material that is openly available (such as economic papers, cost benefit analysis and case study evidence) in an attempt to ascertain what effect infrastructure investment has on the economy.
The return upon infrastructure investment was found to vary significantly not only between projects, but also across countries. Theory suggests that achieving a positive economic effect from investment relies on the current level of provision in respect to that of the optimal (equilibrium level), maintaining the long run competitiveness of the economy, investor certainty, access to capital, accounting for externalities and market failure, and creating a conducive regulatory environment.
Inferences from economic papers
The economic papers reviewed as part of this report display a wide range of views and findings. The effects of infrastructure upon economic growth are by no means consistent in magnitude but more often than not appear to be complimentary in terms of their impact upon growth.
The UK’s Current infrastructure
Appendix A explores in detail the current competitiveness of the UK’s infrastructure to that of other countries utilising The Global Competitiveness Report 2009-20101. Initially it appears that the UK does not perform badly against the 133 other nations used in the comparison. However, if the UK thinks about its ratings in relation to its direct competitors for foreign direct investment there is cause for concern.
The UK ranked within the top 20 for infrastructure in only one category (quality of electricity supply) potentially meaning that we are in an unfavourable position when considering our direct competitors in the G8 and G20. The other categories included the quality of overall infrastructure, quality of roads, quality of railroad infrastructure, quality of port infrastructure and the quality of air transport
Inferences from case studies
This paper looks at the Department for Transports Eddington Study, Crossrail and several highways agency projects. These are used as a means of testing the depth and requirements of project scopes and analysis, and in the case of the highways agency to ascertain if the anticipated benefits are realised after project completion.
The studies into Crossrail shows that project investigations are becoming more detailed in nature and attempt to include both the wider economic benefits and the environmental impacts of such schemes. Improvements in modelling techniques will continue to enable policymakers to make informed decisions as to which projects will be of greatest benefit to the UK’s prosperity. For example, it is predicted that the total user and welfare benefits from Crossrail will range between £30bn-£42bn and the economic benefits £36bn-£67bn.
The Highways Agency schemes which are much smaller in scale also demonstrate good value for money, with economic benefit cost ratios (BCR) of approximately two times or greater.
Concluding remarks
This report has demonstrated that efficient investment in infrastructure can provide significant economic benefits. Although larger scale projects have the potential to significantly influence long-term capacity and economic growth, this report has demonstrated that smaller projects are just as vital to remove congestion and bottle necks within the UK’s current system. These improvements result in efficiency, safety and possibly environmental gains which will all feed through into the wider economy promoting growth.
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