Real option analysis applied to transport infrastructural investment projects

Transport infrastructure investment covers spending on new transport construction, as well as on the improvement of the existing network. It provides a number of benefits for the entire economy, including positive impact on availability of goods and services, volume of trade, productivity of the economy, employment and level of business activity, transport costs and possibility of achieving economies of scale, value of assets, balanced regional and local economic development etc. The paper analyses economic impact of transport infrastructure investment, with special focus on positive contribution to economic growth measured by growth rate of gross domestic product in real terms. There can be identified various channels of such an impact. Transport infrastructure investment can lower costs and raise competitiveness of products, which stimulates the production and contributes to economic growth, but also opens the door to greater savings and investments. Investment in transport infrastructure, also affects aggregate demand level by stimulating the construction industry, as well as a series of related branches of manufacturing industry, whose inputs are used in the construction industry. In addition, investment in transport infrastructure provides positive signals to key sectors of the economy. The conducted empirical researches on the impact of transport infrastructure investments, which mostly rely on Cobb–Douglas production function approach, confirm literature findings on positive impact on economic growth, whether the researches were based on multi-country panel data analysis or on single-country time series analysis. The paper also considers the economic impact of transport infrastructure investment from the point of importance of possible crowding-out effect, which indicates that higher public spending, financed primarily from loans, increases aggregate demand and interest rate and thus reduces the level of private investments.