Economic Modeling Predicts Impact of Global Transportation Changes

September 2016
Topics: Modeling and Simulation, Economics
When change occurs in one of the country's modes of transportation, it ripples outward, affecting other industries. MITRE is using modeling techniques to predict what those effects might be. This, in turn, is informing government investment priorities.
Shane Martin and Dan Brown looking at a screen.

The U.S. government is investing billions of dollars each year on transportation projects. These infrastructure improvements can have a significant impact on other industries. But exactly which industries and how much of an impact? How does knowing this inform priorities?

MITRE is working to answer questions like these. We're doing so by developing a variety of economic models that can predict how changes to transportation will affect individual industries and the overall economy, both at home and abroad.

Forecasting the Impact of the FAA's Aviation Modernization Initiative

MITRE's work in this area began in 2008 with an internally funded research project that sought to apply economy-wide modeling to aviation questions. Specifically, we wanted to develop a model that could measure the impact of the Federal Aviation Administration's 20-year program to modernize the nation's airspace system—an initiative known as NextGen.

"We had the idea that, because air transportation is very important to the U.S. economy, we could use a model to describe how FAA decisions and investments would impact various sectors of the economy," says project leader Katherine Harback.

That work started with an exploration of economic models already in existence. One—the U.S. Applied General Equilibrium (USAGE) model, created by Australia's Centre of Policy Studies (then at Monash University)—provided a particularly suitable foundation for the model that MITRE researchers had in mind.

"USAGE is an excellent tool for analyzing the impact of domestic policy on various sectors of the U.S. economy," Harback explains. "It provides a good representation of U.S. industries. However, it was not as specific as we needed it to be in regard to air transport. So we partnered with the Centre of Policy Studies to create a better-represented air transport industry inside their model."

That collaboration produced USAGE Air, a model that in 2013 was able to provide predictions of NextGen's impact on the U.S. economy. At that time, the model estimated that, between 2011–2030, NextGen improvements could produce billions of additional gross domestic product.

The model also revealed which industries would see significant benefits from NextGen. These included industries that ship their products by air and those that produce products in high demand by foreign tourists, such as computers and electronics. Leisure-related industries would also benefit from NextGen, the model showed.

What Happens When Freight Rail Improves?

When MITRE shared this work with the Department of Transportation, the DOT asked us to create a version of the model that could estimate the value to the economy of improvements in freight rail reliability. MITRE did so. This undertaking required doing additional economic modeling of how various U.S. businesses chose to ship—by rail, truck, air, or water.

"We expect our results to be very useful for cost-benefit analyses examining things like the potential benefits of public-private partnerships in freight rail infrastructure improvements," Harback says. For instance, the model's results may help the DOT prioritize its transportation infrastructure project grants based on which ones are likely to produce the most significant benefits.

Looking at the Effects of International Aviation Changes

We're also extending our aviation-focused economic modeling work to include an international perspective by adding another modeling capability to our toolkit. Since USAGE Air provides a great deal of information on the U.S. but little on the rest of the world, we looked to other existing models. The one that best represented the international picture was the Global Trade Analysis Project, or GTAP, developed at Purdue University.

"GTAP represents 140 regions of the world, most of which are individual countries," says Shane Martin, the project's principal investigator. "And it offers data for each of those regions on 57 economic sectors—things like electricity, construction, trade, air transport, and agriculture."

MITRE worked with Everett Peterson at Virginia Tech to add a 58th sector to that model: tourism. "Tourism is such an important driver of air transportation and vice versa that it was essential to have that sector well-represented in our model," Martin explains. MITRE gathered the necessary tourism-related data from the United Nation's World Tourism Organization and from market research firm Euromonitor International.

MITRE now has a working prototype of the adapted GTAP model and will soon be selecting a test case to demonstrate its capabilities. "Completing the capability," Martin says, "will allow us to not only model how aviation interacts with the complex economy of the United States, but also the world."

by Marlis McCollum

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