Thursday, January 31, 2013

Failure of the M3-M30 motorway?

Failure of the M3-M30 motorway?

by Áron Iker

The Hungarian government aimed to positively affect the regional development of the agglomeration of Miskolc by constructing a motorway between the capital and the city. However,  the reduction in transportation costs between Miskolc and Budapest supposedly has driven to an equilibrium where Miskolc faces with negative agglomeration forces, so the construction of the motorway has had an adverse effect than expected.

The construction of the M3-M30 motorway in Hungary started in 1978 and after long offset periods it eventually reached Miskolc, one of the biggest Hungarian cities. The project had clear goals which were declared by the Hungarian governments. Firstly, it aimed to reduce the congestion on the Road 3 which turned over large cargo and personal traffic. Secondly, the government expected a significant development in the region around the track of the motorway. After the beginning of the 90’s when the artificially sustained heavy industry and mining ceased or rapidly declined, these areas became the poorest ones of the country. Along many economists’ suggestion that infrastructural improvements (through reducing transportation costs) boost the economic prosperity of a given region, politicians had large hopes for the opening of the highway. To sum it up, the goals of the new motorway were focused on lowering both transportation costs and congestion.

In the core model of new economic geography transport costs play a substantial role in the determination of location equilibrium. Construction of a motorway lowers transport costs directly – primarily by higher speed and consequently by less time required for transportation. Congestion can be also considered as a factor that increase transport costs – mainly by time loss and additional hiring costs. By reducing congestion we can also diminish transportation costs. The core theory of new economic geography says that in the presence of high transport costs the unique stable equilibrium is spreading and the reduction of transport costs mainly drives agglomeration forces. In the extended version of the model, where there are vertical linkages between firms, the Bell curve says us that incomplete agglomeration can be also a stable equilibrium and under low values of transport cost we can observe again spreading equilibrium. It is obvious that the result of opening a new motorway is highly depends on the initial state of equilibrium.

While the M3-M30 motorway connects Miskolc with Budapest (and of course with West-Hungary) we can describe it with a two-region model where the agents decision is whether serving the demand of Miskolc by transportation (agglomeration) or establishing local firms (spreading). The aim of the government was the enhancement of the second one. However, if the equilibrium was on the right side of the Bell-curve (the previous history of the region suggests this version), the motorway construction would have negative agglomeration effects in Miskolc.

According to the empirical evidences the decline in the transport costs resulted in a shift toward agglomeration. Firstly we can review the traffic-count data. ( I have chosen Emőd - and in earlier years Vatta - for observations, because here we can find data about the traffic of the Road 3 as well as the M30 motorway, and it is close enough to Miskolc that we can suppose that almost all of the traffic reaches it but there is just negligible local traffic.) It clearly indicates that one of the government’s goals has been fulfilled: congestion sunk significantly. The average daily traffic on the road 3 toward and from Miskolc accounted for 10514 vehicles in 2002 (directly before the opening of the M30 motorway) and 3879 in 2010. The shaping of the traffic also can sign whether agglomeration forces actuate or not. As Graph 1 shows the daily cargo traffic toward and from Miskolc permanently grew. (In order to eliminate distortions originated from measurement imperfections every data are the averages of 3 years.It can sign that it worth for firms to satisfy demand in Miskolc by transport and also that Miskolc becomes an agglomeration where firms export from.

The conclusions of Németh (2006) highly support that the process which evolves is the first one. He shows that the construction of the M3 motorway to Polgár (and the M30 to Emőd) has had no significant effect on the wage levels (which grows if agglomeration evolves) and on the unemployment rate (which usually falls due to the more workplaces in the agglomeration). The only indicator where improvement is observable is the density of firms (all of the data are related to the Hungarian average). However, this indicator depends not only on the number of firms but also on the size of the local population. According to the data of the Hungarian Statistical Office (KSH) the population of Miskolc accounted for 185,567 in 2000 while only 166,823 in 2010. Consequently the growth in the firm density does not sign the evolving agglomeration. Other KSH data confirm that in Miskolc we can observe negative agglomeration trends. As Graph 2 shows after 2004 (when the motorway reached Miskolc) the number of operating firms in the city began to decline.

On the whole we can say that the reduction in transportation costs between Miskolc and Budapest supposedly has driven to an equilibrium where Miskolc faces with negative agglomeration forces, so the construction of the motorway has had an adverse effect than expected. The most important consequence of this story is that reducing transportation cost is not always useful for the aimed region, especially if it does not couple with other sufficient measures.


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