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UBC Theses and Dissertations

Economics of the U.S. highway infrastructure : why are prices rising and how to measure them? Onayev, Anuarbek


The rising price to build transport infrastructure poses a challenge to policymakers who are grappling with increasingly limited available resources. The United States now gets less per dollar of infrastructure spending than it used to. Although transport infrastructure is a key input into long-term growth of the broader economy, the knowledge around the infrastructure prices and their potential drivers is limited. Therefore, this thesis aims to fill this gap by documenting and analyzing highway infrastructure spending between 2005 and 2017. More specifically, this thesis aims to improve current measures of productivity and price growth, and identify explanations for the increasing price of highway infrastructure. To improve the productivity measures in the sector, quality-adjusted producer price index of highway infrastructure is generated. The indicator of quality is the deterioration rate of a roadway. The developed deterioration model captures the effect of pavement performance improvements (i.e., quality) across time. By using an iterative-reweighted least squares approach, the model is applied to publicly available roughness data of asphalt concrete pavements collected as part of the FHWA’s long-term pavement performance program. Through analysis of highway projects across the contiguous U.S., the proposed quality-adjusted index reveals that annual productivity growth in the sector was underestimated by 2.0 percent. An econometric analysis of the highway sector aims to evaluate for decision-makers possible explanations for the price growth. The developed model identifies that highway prices are largely influenced by changes in labor, material input prices, and demand for more expensive roads. In addition, the results strongly suggest the presence of the Baumol effect, a phenomenon in which labor compensation growth outpaces productivity growth leading to an increase in prices. The primary contribution of this research is two-fold. First, the findings around price-drivers of the highway construction provide policymakers with new information that may help them evaluate opportunities to mitigate price growth. Second, the proposed methodology to improve productivity and price growth measures motivate economists and statistical agencies to reconsider their current approaches. The new insights around productivity growth in the sector also motivate further investigation of the topic by the research community.

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