The objective of this study was to assess the economy wide indirect benefits of investments in the East West Highway (EWH). This study has used a computable general equilibrium (CGE) model, which simulates indirect benefits associated with the completion of the upgraded road corridor. The transmission channel modeled is the reduction in transportation costs—reduction in vehicle operating costs and time savings—resulting from the investments in the EWH. This reduction in transportation costs is normally assessed when conducting cost-benefit analysis of road projects, but without assessing the indirect impacts their reduction has on the wider economy. Explicitly excluded from the analysis are the direct impacts associated with the civil works of the EWH investment program, which would have large impacts on real GDP and employment.
The model results reveal that the indirect benefits from the EWH investment program have an overall positive impact on key macroeconomic and welfare variables over the medium and long-term. Real GDP is assessed to increase by 1.5 percent over medium-term horizon and 4.2 percent over a long-term horizon. Both exports and imports are expected to expand in the long-run, with exports growing on average faster in the long-run. Infrastructure development contributes to growth in welfare of all categories of households, although the first two quintiles with the lowest income gain relatively less than other household groups. On average, rural households are expected to gain more than urban households, in line with a priori expectations. Sensitivity analysis suggests the results are robust to parameter changes.
