Impact Of Transportation On Economic Growth; An Assessment Of Road And Rail Transport Systems

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Impact Of Transportation On Economic Growth; An Assessment Of Road And Rail Transport Systems

Chapter One


1.1 Background Of The Study

One of the key factors that play a pivotal role in a region’s economic growth is the presence of a reliable and efficient transportation system, this is mainly due to the fact that a well developed transportation system provides adequate access to the region which in turn is a necessary condition for the efficient operation of manufacturing, retail, labour and housing markets.

Transportation is a critical factor in the economic growth and development. It is a wealth creating industry on its own inadequate transportation limits a nation’s ability to utilise its natural resources, distributes foods and other finished goods, integrate the manufacturing and agriculture sectors and supply education, medical and other infrastructural facilities. There is the need therefore to maintain and improve the existing transportation and build new infrastructures for a national wealth. The national wealth is the growth domestic products (GDP) which is an indicator or measures of the rate of economic growth.

Transportation infrastructure is critical to sustain economic growth because people want to improve their standard of living and they see increased income as the way to achieve that goal, transportation system enhancement are in turns a means of maintaining or improving economic opportunities, quality of life and ultimately income for people in a particular region Lucas (1998)

Transportation also has a broader role in shaping development and the environment. Policy concerns in the next millennium will increasingly focus on the effects of transportation on where people live and on where businesses locate; and on the effects that these location decisions have on land use patterns, congestion of urban transportation systems, use of natural resources, air and water quality, and the overall quality of life Issues of urban sprawl, farmland preservation, and air and water quality have already pushed their way to the forefront of policy debates at both the national and local levels. To make prudent decisions, policy makers must be equipped with the best information and analysis possible about the interactions among these various factors.

Transportation becomes the back bone of any economy, especially countries like Nigeria, as such an anatomy of aspects relating to inefficiencies and lack of good transportation network in Nigeria coupled with low rate of economic growth (GDP) is crucial, attached to this is the poor government policy on transportation (Lack pf regulation of fees charged by private transporters, inadequate fuel. Lack of spare parts and above all the prevalence of bad roads and lack of security have succeeded in trimming down the transport system in Nigeria which have a negative effect on the economic growth.

Investment in transportation infrastructure is critical to sustained economic growth. Mobility studies show that transportation is absolutely essential to economic productivity and remains competitive in the global economy. An international study found every 10 percent increase in travel speed; labour market expands 15 percent and productivity by 3 percent (Barrister and Berechinan. 2000).

It is universally recognized that transport is crucial for sustained economic growth and modernization of a nation. Adequacy of this vital infrastructure is an important determinant of the success of a nation’s effort in diversifying its production base, expanding trade and linking together resources and markets into an integrated economy. It is also necessary for connecting villages with towns, market centres and in bringing together remote and developing regions closer to one another. Transport, therefore, forms a key input for production processes and adequate provision of transport infrastructure and services helps in increasing productivity and lowering production costs.
The provision of transport infrastructure and services helps in reducing poverty. It needs no emphasis that various public actions aimed at reducing poverty cannot be successful without adequate transport infrastructure and services. It is difficult to visualize meeting the targets or universal education and healthcare for all without first providing adequate transport facilities.

All sectors, including transport, operate within the socioeconomic framework provided by the State. Specific policies are designed within the framework for each sector in order to, meet national goals and objectives. Currently, the main objective of development planning in India is higher growth in Gross Domestic Product (GDP). The aim is to achieve a target of 8 percent growth in GDP by 2007, i.e. by the end of Tenth Five Year Plan. The higher rate of economic growth must also be accompanied by wider dispersal of economic activity and has to go together with the objectives of reduction in poverty, provision of gainful and high quality employment, improvement in literacy rates, reduction in the growth of population, reduction in gender inequality in illiteracy and wage rate, reduction in infant mortality, etc. As a service industry, transport does not exist for its own sake. It serves as a means to achieve other objectives. In formulating policy for the development of the transport sector, various macro objectives mentioned above therefore have to be taken into account. Some of these are economic in character while others are of a socio-political nature. Economic and non-economic objectives are not always consistent. However, their mix is one of the important factors which determine the pattern of investment and its funding in various sectors of economy.
Transport demand, both freight and passenger, is linked to the level of economic activity and development needs. It runs parallel to the growth of GDP. A higher rate of growth will therefore mean higher transport demand. However, as growth of GDP results in dispersal of economic activity, the demand for transport will go up further.

The demand for transport services is also affected by the structural changes that are taking place in the Indian economy. As a result, the share of high value low volume commodities has been increasing, which in turn demands more flexible modes such as road transport. There has been an increase in the level of urbanization owing to migration and growth of population. The share of urban areas in the total GDP therefore has been on the rise. Such a spatial shift in the distribution and concentration of economic activity has a profound effect on the nature and level of transport demand. The most obvious result was the increase in demand for urban transport services. Taking various factors into account, it is expected that the elasticity of demand for freight traffic with respect to GDP growth will decline in the future but will still he more than one. With India’s resolve to move to a higher growth path, it means that the demand for transport will continue to experience a high growth rate.

This study will examine the impact of transportation infrastructure on economic growth in Nigeria by evaluating the relationship that exists between transportation infrastructure and economic growth.

1.2 Statement Of The Problem.

Given the fact that transportation Infrastructure is very crucial to the growth of the economy, the situation of Nigeria transportation infrastructure is at a poor state. Recent studies by Adeniji (2000), Innocent C. Obi (2011) shows that: less than 50% of the National road network are in fair or good condition causing an average death of 50 people per day; Less than 300,000 tonnes of freight and less than 2.3 million passenger are been transported by rail; More occurrences of air crashes in the Aviation sector; High rate of congestion in the sea port; and More vandalization of pipeline. When all this losses are added up to economic cost for loss of productive man-hour, it becomes clear that the situation really need urgent attention. However, various research studies have been descriptive showing the importance of having a better transportation infrastructure in place so as to increase the sector contribution to economic growth and development, although there are few study that are empirical. Thus, this study will enlighten us on the situation and empirical linkage of transportation infrastructure improvement and economic growth, in which more emphasis will be on Nigeria transport infrastructure.

1.3 Objective Of The Study.

The broad objective of this study is to examine the impact of transportation infrastructure improvement on economic growth in Nigeria. The specific objectives of the study are as follows:

  1. To describe the situation of transportation infrastructure in Nigeria.
  2. To evaluate the empirical linkage between transportation and economic growth.
  3. To access the channel through which transportation affect economic growth.

1.4 Research Questions.

Based on the problems of the research topic, the research questions are as follow:

  1. What is the situation of transportation infrastructure in Nigeria?
  2. What is the empirical linkage between transportation and economic growth?
  3. What channel does transportation work through to affect economic growth?

1.5 Justification Of The Study.

The study is justified by the need to provide empirical understanding of the impact of transportation infrastructure improvement to the economic growth of Nigeria and how it influences the development process. Thus, there is no doubt that transportation is essential in operation of a market economy; Planners needs guidance based on solid grounds, to aid in their decision to improve existing transportation and build new infrastructure. As stated by Boopen(2006), Transport improvement have opportunity cost in terms of alternative investment that can be carried out by the government. To ensure that resources are well allocated, policy makers need to have empirical base on which to draw their plan. An empirical knowledge of how transportation infrastructure improvement will affect economic growth need to be established so that adequate plan can be made for the transport sector. Also, there is the need to have a direct linkage between transport infrastructure and economic growth, in which prediction can be made to determine the level of transport investment that can achieve a desired level of economic growth.

If capital improvements in transportation facilities lead to greater development than when capital is used in other areas, then planner should realize the benefits to be gained by developing the transportation infrastructure. If on other hand, capital improvement in transportation facilities cannot be linked to economic performance, then scarce resource could, perhaps, be put to better use. There is therefore the need to examine the linkage between transport infrastructure and the economic growth of developing countries, particularly Nigeria, in order to help policy makers formulate policies that will favour the transport sector to enhance growth of economy. To the people, this study will enlighten them more on the important of having a better transport system; To students and researchers, this study reveal the current situation in the sector by adding to the work done by other researcher so as to provide base for future research; To the policy maker this study will reveal the state of transport infrastructure across the country making them known that more funds and implementation of policy already made is needed critically to be in place in the sector.

1.6 Research Methodology.

This study makes use of the econometric technique in evaluating the relationship between transportation sector infrastructure sector infrastructure components and economic growth in Nigeria, The Ordinary Least Square (OLS) technique is employed in obtaining the numerical estimates of the coefficients in different equations, The OLS method is chosen because it possesses some optimal properties: its computational procedure is fairly simple and it is also an important component of most other estimation techniques. The estimation period covers thirty years since the data needed are available for this period. The data for this study is obtained mainly from secondary source, particularly from Central Bank of Nigeria (CBN) publications.

1.7 Scope Of The Study.

This study is a macro-study that covers the transportation in Nigeria economy as a whole. The data generated covers the contribution of the sector to GDP from the year 1981 to 2011. The concept of economic growth has to do with the entire economy; hence the study is a macro study, Also the choice of time frame is as a result of the limited access to data. Likewise, data availability also pose problem in the water and air transport network.

1.8 Plan Of The Study.

The study will be classified into five chapters. Chapter1 contains the introduction, background of the study, statement of the research problem, objective of the study, research methodology, significance of the study, scope of the study. Chapter 2 contains Literature review as well as the theoretical framework, in which the chapter review the work and contribution of different researchers on the relative impact of transportation on growth. Chapter 3 concentrates on the research methodology stating the model formulation, technique of data analysis etc. Chapter 4 contains the empirical analysis and interpretation of results. Chapter 5 contains the summary, conclusion and recommendation.

Chapter Five

Summary, Conclusion And Recommendation


This chapter will focus on the summary of findings, conclusion and recommendations of appropriate policies. All these will be based on the results gotten from the regression and the analysis of results.

5.1 Summary

This study looked at impact of transportation infrastructure improvement on economic growth in Nigeria between 1981 and 2011 using Central Bank of Nigeria (CBN) statistical bulletin data. Improvement in transportation infrastructure are related to transport industry efficiency, creation of social and economic benefit, reduced cost associated with transportation which leads to greater productivity, reduce distribution cost, thereby reduce production cost, expand market, increase employment demand, and increasing National output.

The channels through which transportation affect economic growth was viewed in the study through saving of labour force in which having an efficient and effective mode of transport, communication, and movement will be made easier which will save time, cost and reduce the rate of accident. The study also showed that death rate in road accident is high which leads to loss of live and reduction in labour force because when there is increase in accident there will be increase in death rate which will lead to a decrease in labour force in the economy.

The empirical linkage between transportation and economic growth was captured through the model (which made use of transport sector output, transport expenditure and gross domestic product) which captured the relationship between transportation and economic growth through statistical analysis. We found that economic growth is positively influenced by transportation whereby transport output, transport investment exerts positive influence on GDP, which implies that improvement/ increase in transport sector will lead to an increase in GDP in the country which will bring about economic growth because transportation provide intermediate service for Agricultural sector, Manufacturing output, investment e.t.c, which stimulate the economy togrow.

5.2 Conclusion

The study reveals that there is a relationship between transportation infrastructure and economic growth. It discovered a positive relationship between GDP, transportation investment and transportation output. Thus, an increase in the output and investment of the transport sector will lead to increase in the GDP of the country.

These findings are supported by empirical studies such as Pravakar, Ranjau and Nataraji (2010) study, and it is further illustrated in Nogzi and Mulikat (2010) study. They found that infrastructural investment positively contributes to economic growth.

5.3 Recommendation

Based on the findings of this study, Nigeria gross domestic product can be increased if the following recommendations are taken into consideration.

The Federal government budget allocation to transport sector should be increased because this will increase the funds directed to improve the available infrastructure and to add to the existing infrastructure. Also, there should be full implementation of public private partnership (PPP) in transport sector project as recommend in the National draft on transport policy for the Federal Republic of Nigeria (2010).

The Federal Ministry of Transport should balance the federal government effort through transportation regulations, strict monitoring of implementation of the allocation, improving the quality of human resources and the involvement of the private sector. They should provide adequate transportation facilities in terms of road signs, traffic lights, street lights, medians, drainages, and functional mass transit vehicles by government and private individuals is necessary so as to minimize traffic congestion and accidents.

The Federal Ministry of Transport need to increase the number of quality road networks as well as introducing high occupancy vehicle lanes. Proper maintenance of existing road networks should be enforced. There is also need for construction of flyovers at crossroads to lighten up notorious congestion areas. Also, they should be increased investment in research on other modes of transportation such as opening up water ways, revitalizing the railway system so as to reduce congestion and pressure on the existing roads.

Nigerians should ensure to pay charged taxes, toll gate fee and fines for breaking the traffic rules because this will balance the government effort in providing world-class transport facilities. Also, people should make use of other mode of transportation that are available in the country.

Impact Of Transportation On Economic Growth; An Assessment Of Road And Rail Transport Systems

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