Determinants of Optimal Level of Transportation Infrastructure

Abstract

This paper examines the determinants of the optimal level of transportation infrastructure, estimating the excess amount of demand for or supply of transportation facilities in Korea. The optimal amount of transportation facilities is generated through a simulation of the recursive computable general equilibrium model under different scenarios of annual growth rates of policy variables such as gross domestic product (GDP) and the consumer price index for 10 years. This paper finds that higher levels of transportation capital stock are associated with higher economic growth and price inflation and a lower price level for transportation services. The accumulation of transportation capital stock is very responsive to the consumer price index and the price index of transportation services. Also, an increase in the GDP by 1% results in an increase in capital formation by the transportation sector by 0.9914%. For the period of 1975–1992, the average ratio of the actual level of transportation capital stock to the optimal one is estimated at 85.30%, and underprovision relative to the GDP on average is 4.66%.